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PETITIONER: UCO BANK

       Vs.

RESPONDENT: HEM CHANDRA SARKAR

DATE OF JUDGMENT25/04/1990

BENCH: SHETTY, K.J. (J) BENCH: SHETTY, K.J. (J) FATHIMA BEEVI, M. (J)

CITATION:  1990 AIR 1329            1990 SCR  (2) 709  1990 SCC  (3) 389        JT 1990 (3)   369  1990 SCALE  (1)784

ACT:     Indian    Contract   Act,   1872:   Chapters   IX    and X--Bailment-Agency--Distinguishing     features--Duty     of Banker-bailee--What   is--Bank  entrusted  with  charge   of goods/documents    by   customer--Whether   an   agent    or bailee--Whether  any fiduciary relationship  exists  between parties.     Banking  Law--Bank and Customer--Existence of  fiduciary relationship--Whether  could  be inferred  from  entries  in current account.

HEADNOTE:     The respondent, who was indenting and lifting goods from textile  mills situated in different places, and  was  main- taining  a current account with the appellant-Bank for  this purpose,  filed a suit against the Bank for  accounts,  dam- ages, compensation and delivery of goods or their equivalent in  money, for non-delivery of goods despite receiving  pay- ment  thereof, contending that there was an  oral  agreement with  the appellant-Bank, regarding receipt and  payment  of bills, etc. and receipt and storage of goods on his  behalf, and delivery of goods to him as and when required. and  that under the said terms and conditions. the Banker  constituted himself and acted as an express trustee and/or agent of  the respondent  in relation to the said goods and documents  and thus stood in fiduciary relationship with the respondent.     The  appellant. denying the allegations, contended  that it had never acted as an agent, trustee or depositee of  the respondent in respect of the goods and documents and that no fiduciary relationship existed between the parties.     The  trial court decreed the suit holding that from  the evidence  and  entries in the current account, it  could  be inferred that there was agreement or arrangement between the parties,  and  the appellant acted as agent/trustee  of  the respondent.  and that there was fiduciary  relationship  be- tween the parties. The  High  Court, affirming the decree of the  trial  court. held that 710 if  the respondent had paid the value of the goods  and  the appellant  Bank  neither delivered the  goods  nor  rendered

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accounts.  a fiduciary relationship could exist between  the respondent  and the Bank in respect of the goods  for  which value was paid by the respondent.     In the appeal, by special leave, on behalf of the appel- lant Bank it was contended that the Bank was only a collect- ing  agent  for  the supply of goods, and not  an  agent  or trustee for the respondent; adjustment of bills by  debiting to  the current account without cheques from the  respondent would  not  change  the ordinary relationship  of  bank  and customer;  no  special relationship was  created  either  by opening  the current account or storing the goods meant  for delivery to the respondent and there was nothing to take the parties  outside the usual course of banking  business;  and the  bank  received  and took charge of the  goods  only  as bailee and any inference of fiduciary relationship  between. parties was unwarranted and unjustified. Dismissing the appeal. this Court.     HELD: 1. The courts below were not justified in  holding that  a fiduciary relationship could exist between the  par- ties in respect of goods for which the suit claim was based. This inference was drawn primarily from the debit entries in the  respondent’s  current  account.  Collection  of  bills. remittances to mills. meeting expenses of storing the  goods and  debiting the same to the current account  even  without cheques  from the respondent could not lead to an  inference that  the  Bank acted as agent of the  respondent  and  that there  was fiduciary relationship between parties. There  is nothing  in  this method of operation to  take  the  parties outside  the ordinary relationship of banker  and  customer. This  is  the  normal method of banking  operation  and  the maintenance  of the current account in the instant  case  is not outside this principle. [716D-G]     Law of Banking by Lord Chorley 10th ed. at 167- 168  and Paget’s Law of Banking, 9th ed. at8.2-83. referred to.     2.1 Banks take charge of goods, articles, securities  as bailee and not as trustee or agent. Bailment is the delivery or  transfer  of possession of a chattel or  other  item  of personal property with a specific mandate which required the identical  res either to be returned to the bailor or to  be dealt  with in a particular way by the bailee as per  direc- tions  of the bailor. One important’ distinguishing  feature between  agency  and bailment is that the  bailee  does  not represent the bailor. He merely exercises. with the leave of the bailor under contract or otherwise, certain 711 powers  of  the bailor in respect of his  property  and  the bailee  has no power to make contracts on the  bailor’s  be- half: nor can he made the bailor simply as bailor liable for any acts he does. [717D-F] Fridman’s Law of Agency 5th ed. p. 23, referred to.     In  the instant case, there is nothing to indicate  that the  Bank represented some of the parties or the  respondent with authority to change the contractual or legal  relation- ship of parties. It cannot, therefore. be held that the Bank acted as agent of the respondent. [717G]     2.2   The  banker bailee, gratuitous or for  reward.  is bound to take the same care of the property entrusted to him as  a  reasonable,  prudent and careful man  may  fairly  be expected  to take of his own property of the  like  descrip- tion. A paid bailee must use the greatest possible care  and is  expected  to employ all precautions in  respect  of  the goods  deposited with him. If the property is not  delivered to  the true owner the banker cannot avoid his liability  in conversion. [718C-D]     Having  regard  to the finding of fact recorded  by  the

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courts  below,  it is immaterial whether the Bank  acted  as bailee or in any other capacity. On the evidence adduced  by the parties it has been established that the respondent  did pay the price of the goods in respect of which he based  his claim in the suit. The Bank having received the price of the goods  from the respondent has failed to deliver  the  same. This  finding has not been seriously disputed and  the  evi- dence adduced by the Bank was insufficient to establish  the factum of delivery of goods to the respondent. Therefore the bank  could not avoid the liability to return the  goods  as agreed  upon or to pay an equivalent amount to the  respond- ent. Even if it is assumed that the goods were delivered  to a  wrong person, the Bank has to own the  responsibility  to pay the respondent. The liability of the banker to  customer in such a case is absolute even if no negligence is  proved. [717H; 718A; B, E]     Halsbury’s  Laws of England 4th ed. Vol. 3 paras 93  and 94. The Law Relating to Banking by T.G. Reeday 4th ed. p. 81 and  Law and Practice relating to Banking by F.E. Ferry  5th ed. p. 21, referred to.     3. In practice, the bankers do not set up the statute of limitations against their customers or their legal represen- tatives. There is no reason for making an exception to  this practice in the instant case.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3566  of 1989. 712     From  the  Judgment  and Order dated  17.2.1989  of  the Gauhati High Court in F.A. No. 7 of 1972. K.N. Bhatt, H.N. Salve, A.K. Sil and G. Joshi for the Appel- lant. S. Parekh for the Respondent. The Judgment of the Court was delivered by     K.  JAGANNATHA  SHETT, J. The question of law  which  is concerned in this appeal is whether in the circumstances  of the  case,  the appellant ("Bank") was required  to  act  as agent  of  the respondent or as bailee in respect  of  goods entrusted for delivery to the respondent against payment.     In  1945 the respondent was carrying on the business  of wholesome and retail dealership in textile yarn and cloth at Agartala and in the course of that business he was appointed as  a Government nominee to indent for and lift the  quanti- ties  of  cloth and yarn to Agartala  from  different  mills situated in Bengal, Bombay, Ahmedabad and other places.     For  the  purpose of that business, the  respondent  had maintained Current Account No. 391 with the Agartala  Branch of  the United Commercial Bank Limited which has since  been styled as ’UCO Bank’, the appellant in this appeal.     The case of the respondent-plaintiff was that there  was an  oral agreement with the Bank on September 2, 1950  under which the latter inter alia was to receive bills,  documents and air receipts sent by or on behalf of the plaintiff  from his  agents  or  suppliers and  would  release  and/or  take delivery of goods sent by them, as and when the goods arrive at  Agartala.  The Bank would hold or keep  the  said  goods stored in its godown for and on behalf of and on account  of the plaintiff for his benefit etc. It was also alleged  that payment  of the bills in respect of goods dispatched to  the Bank  should  be made by the plaintiff. He should  be  given delivery of the goods and air receipts by the Bank according to  his convenience and requirement. It was  further  stated

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that under the said terms and conditions, the Banker consti- tuted  himself and acted as an express trustee and/or  agent of  the  plaintiff  in relation to the said  goods  and  air receipts  and thus stood in fiduciary relationship with  the plaintiff. 713     Complaining  non-delivery of goods even after  receiving payment thereof, the plaintiff brought a suit for  accounts, damages, compensation and delivery of goods or their equiva- lent in money valued at Rs.2,68,198.97.     The  Bank  has denied all the allegations  and  asserted that it never acted as an agent, trustee or depositee of the plaintiff in respect of the goods and documents. The  exist- ence of fiduciary relationship between the parties was  also denied.  It  was however stated that  certain  parties  from Calcutta were supplying goods to various parties in Agartala including the plaintiff and they used to send bills with air receipts Covering the goods to the Bank for presentation  to the  drawees  and the Bank would deliver  the  same  against payment. The Bank collected bill amounts on behalf of  those parties  in  the usual course of business.  It  was  further admitted that some parties from Calcutta engaged the Bank to collect the amounts of the bills drawn on the plaintiff,  to clear the goods dispatched by them from the Airways on their behalf,  to  store them in Bank’s godown and  to  allow  the drawee  (plaintiff)  to take delivery of the  goods  against payment of their costs and charges including the salaries of the godown staff, handling and insurance charges etc.  Those charges  and costs were recovered from the plaintiff by  the Bank  on  behalf or’ the parties sending the  goods  to  the plaintiff.  The Bank maintained that it had dealt with  such goods of the Calcutta parties, recovered monthly charges  at the  instructions of the drawers and the drawee  (plaintiff) and debited to the account of the plaintiff. When there  was no  amount available in the plaintiff’s account or when  the plaintiff defaulted in retiring the bills, the said  charges were recovered from the drawers. The goods in the custord of the  Bank on behalf of the Calcutta parties which were  paid for by the plaintiff would be delivered to the plaintiff and the  goods  for which no payment was made by  the  plaintiff would be returned to the drawers of the bills. The  trial  court framed among others, the  following  three issues:     (9) Was there any agreement and/or arrangements  between the parties as alleged in the plaint?     10)  Was  the defendant a trustee and/or  agent  of  the plaintiff as alleged in the plaint? and     (11)  Was there any fiduciary relationship  between  the parties as alleged by the plaintiff? 714     The trial court recorded findings on all these issues in the affirmative and in favour of the plaintiff. On Issue No. (9) as to the existence of agreement, it was observed: "The evidence on record shows that regular accounts of goods for the plaintiff would be maintained by the defendant Bank. Although  the  purpose  of current account No.  391  of  the plaintiff  cannot alter the nature being that of debtor  and creditor  attributable  to the account, the  factum  of  the account  and its operation also indicate that there  was  an agreement between the parties. This does not however exclude necessary  agreement  or arrangement by the  bank  with  the Calcutta  parties.  Debits in the account of  the  plaintiff started to be made from 13.9.50 in connection with  transac- tions  of the plaintiff, whereas the alleged  agreement  be- tween  the bank and S.T. Bros, occured in March,  1951.  All

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these factors lead to the inference that there was an agree- ment  or  arrangement  between the bank  and  the  plaintiff regarding  payment of bills and charges for the  account  of the  plaintiff and otherwise and regarding storing of  those goods  received  by the Bank in its godowns,  of  which  the plaintiff  came to be owner and for delivery of those  goods as and when required by the plaintiff. These are the minimum terms deducible from the evidence on record. To this  extent the issue is answered in favour of the plaintiff." Issue No. (10) was determined as follows: "It  is  in  evidence that the Bank  collected  bills,  made remittances  to  mills,  applied for  purchasing  drafts  on behalf  of the plaintiff, met expenses of storing the  goods by  debiting  account No. 391 of  the  plaintiff,  collected treasury  bills of the plaintiff and vide Ext.  P-56  series made adjustment of bills by debiting account No. 391 without cheques issued by the plaintiff and did similar other works. All  this  leads to the reasonable inference that  the  bank also  acted  as agent of the plaintiff. In this  suit,  such agency  of  the defendant involved a relation of  trust  and confidence  and  the  goods which came to be  owned  by  the plaintiff on payment of value thereof and which remained  in the  hands  of the bank were impressed with  trust  for  the benefit  of the plaintiff. As matter of fact, the  defendant bank’s position 715 was  that of an intermediary owing duties to both  the  Cal- cutta parties and the plaintiff."     Issue No. (11) as to the fiduciary relationship  between the Bank and plaintiff, it was remarked: "The  bank collected cheques issued in its favour and  under advice of the plaintiff remitted the money to the mills  and the Calcutta parties to meet the value of the bills drawn by the  mills  and  the  agents  of  the  plaintiff   (Calcutta parties).  It  has to be noted in this connection  that  the Calcutta parties acted as agents of the plaintiff in so  far as  they  acted on behalf of the plaintiff  in  lifting  the controlled  commodities  from the mills  and  arranging  for their dispatch to Agartala. The bank also made adjustment of bills by debiting account No. 391 without any cheques  being issued by the plaintiff, vide Ext. P-56 series, and met  the expenses  of storing the goods by debiting from the  account No. 391 of the plaintiff. From Ext. P-61, stock register, it is seen that the bank stocked goods on account of the plain- tiff  in  its godowns on those premises,  according  to  the learned  counsel for the plaintiff, there is no escape  from the conclusion that the bank stood in a fiduciary  relation- ship  with the plaintiff. Learned counsel for the  defendant bank  urged that save and except relationship of banker  and customer there was no other relationship between the  plain- tiff  and  defendant bank. But in view of the  materials  on record I find that there was fiduciary relationship  between the plaintiff and the defendant bank. This issue is  decided in favour of the plaintiff." Accordingly, the suit was decreed in part directing delivery of  goods or the value equivalent to Rs.1,26,500. A  Commis- sioner  was also appointed to take accounts with  regard  to the transactions.     The  High Court of Calcutta has affirmed the  decree  of the trial court. As to the question of relationship  between the Bank and customer, the High Court observed: "In our opinion if we find that the plaintiff paid the value of  the goods and the appellant bank neither  delivered  the goods nor rendered accounts, a fiduciary relationship  could exist between the plaintiff and the bank in respect of the

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716 goods for which value was paid by the plaintiff." The Bank by obtaining leave has now appealed to this court.     In  opening the appeal, Counsel for the appellant  urged that the case of the plaintiff based on oral agreement which is  expressly contrary to banking transactions ought not  to be relied upon. It was claimed that the Bank was a  collect- ing  agent  for the supplier of goods and not  an  agent  or trustee for the respondent. Adjustment of bills by  debiting to  the current account without cheques from the  respondent would  not  change  the ordinary relationship  of  bank  and customer. There was no ’special relationship’ created either by  opening the current account or storing the  goods  meant for delivery to the plaintiff and there was nothing to  take the parties outside the usual course of banking business. It was further argued that the Bank received and took charge of the  goods  only as bailee and any  inference  of  fiduciary relationship  between parties was unwarranted  and  unjusti- fied.     Counsel for the appellant appears to be very  particular to get rid of the finding recorded by the Courts below as to the  fiduciary relationship in bank and  customer  relation- ship.  We agree with him that the High Court and  the  trial court  were not justified in holding that a fiduciary  rela- tionship could exist between the parties in respect of goods for which the suit claim was based. This inference was drawn primarily from the debit entries in the plaintiff’s  current account.  Reference was made to collection of bills,  remit- tances  to mills, meeting expenses of storing the goods  and debiting  the  same  to the  current  account  even  without cheques  from  the plaintiff. These acts  according  to  the trial  court would lead to an inference that the Bank  acted as  agent  of  the plaintiff and there  was  thus  fiduciary relationship between parties. But we do not find anything in this  method  of operation to take the parties  outside  the ordinary  relationship of banker and customer. Lord  Chorley says that "the main mass of daily banking activity in branch banks  is concerned with the operations of current  accounts which  thus provide a sort of hub round which the wheels  of the whole set up of commercial banking revolve  .....  There is  no accepted definition of a current account;  though  in its  normal  form it is easily recognised in  practice.  The principal  feature of such an account is the fact  that  the customer  gets  his money repaid from it,  or  any  advances which  he is receiving from his banker by way of  loan:  and this is so whether the repayment is to himself or to a third party. Normally the repayment is made through the  machinery of  the cheque and conversely unless otherwise indicated  by the customer it is implied that 717 cheques  paid in are for the credit of the current  account, and that they will be so credited  .....  We have seen  that overdrawings by the customer when allowed by the banker  are treated  as  loans.’  They will be debited  to  the  current account.  Indeed it is through the current account,  and  by means  of overdrafts on it that loans and advances are  nor- mally  made by bankers to their customers". (Law of  Banking by  Lord  Chorley  6th ed. at 167-168). In  Paget’s  Law  of Banking, 9th ed. at 82-83, it is stated that "the current or drawing  account  may  be either a credit  or  an  overdrawn account.  A credit account is made up of moneys paid  in  by the  customer, the proceeds of cheques and  bills  collected for  him,  coupons collected, interest  and  dividends  paid direct  to the banker and from various other  sources,  less any money properly paid out. Moneys from different  sources,

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once they have found their way into the current account, are treated  as one entire debt." This is the normal  method  of banking operation and the maintenance of the current account in  this case appears to be not outside this  principle  and therefore,  no inference could be drawn that the Bank  stood in fiduciary relationship with the plaintiff.     Next  question  for consideration is  whether  the  Bank acted  as agent of the plaintiff in respect of the goods  in question?  Here  also  Counsel appears to be  right  in  his submission. Banks take charge of goods, articles, securities as  bailee  and  not as trustee or agent.  Bailment  is  the delivery  or transfer of possession of a chattel  (or  other item  of  personal property) with a specific  mandate  which requires  the  identical res either to be  returned  to  the bailor or to be dealt with in a particular way by the bailee as per directions of the bailor. One important  distinguish- ing  feature between agency and bailment is that the  bailee does not represent the bailor. He merely exercises, with the leave  of the bailor (under contract or otherwise),  certain powers  of the bailor in respect of his property.  Secondly, the  bailee has no power to make contracts on  the  bailor’s behalf; nor can he make the bailor liable, simply as bailor, for  any acts he does. (See Fridman’s Law of Agency 5th  ed. p.  23). In the instant case, there is nothing  to  indicate that the Bank represented the Calcutta parties or the plain- tiff  with  authority  to change the  contractual  or  legal relationship of parties and therefore, there is no  justifi- cation  to hold that the Bank acted as agent of  the  plain- tiff.     But  that  however, does not mean that  the  Bank  could succeed in this appeal. Having regard to the finding of fact recorded  by the Courts below, it is immaterial whether  the Bank  acted as bailee or in any other capacity. On the  evi- dence adduced by the parties it has been 718 established  that  the plaintiff did pay the  price  of  the goods  in respect of which he based his claim in  the  suit. The Bank, however, took the plea that the goods were  deliv- ered to one Shishu Ranjan Sen, who was the authorised  agent of the plaintiff. But at the relevant time the plaintiff had his  own agent called Dhani Ram and he did not  receive  the goods.  The Bank has neither examined Shishu Ranjan Sen  nor Dhani Ram. The Bank examined one Dhawan (DW-2) to prove some initials of Shishu Ran jan Sen on certain documents but  his evidence has not been accepted. The fact, therefore, remains that  the Bank having received the price of the  goods  from the  plaintiff has failed to deliver the same to  him.  This finding has not been seriously disputed and indeed cannot be disputed  since  the Bank having chosen not to  call  Shishu Ranjan  Sen  or  Dhani Ram to give  evidence.  The  evidence adduced  by the Bank was thus insufficient to establish  the factum  of  delivery of goods to the plaintiff.  The  banker bailee  gratuitous or for reward is bound to take  the  same care  of the property entrusted to him as a reasonably  pru- dent  and careful man may fairly be expected to take of  his own property of the like description. (See: Halsbury’s  Laws of  England 4th ed. Vol. 3 para 93). In fact a  paid  bailee must  use  the  greatest possible care and  is  expected  to employ  all  precautions in respect of the  goods  deposited with  him.  If  the property is not delivered  to  the  true owner, the banker cannot avoid his liability in  conversion. (See: (i) The Law Relating to Banking by T.G. Reeday 4th ed. p.  81;  (ii) Law And Practice relating to Banking  by  F.E. Ferry  5th ed. p. 21). In the light of these principles  the Bank  could not avoid the liability to return the  goods  as

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agreed upon or to pay an equivalent amount to the plaintiff. Even  if we assume that the goods were delivered to a  wrong person,  the Bank has to own the responsibility to  pay  the plaintiff.  The  liability of banker to customer in  such  a case  is absolute even if no negligence is proved. In  Hals- bury’s Laws of England (supra, para 94), it is stated "where the  bank  delivers the goods to the wrong  person,  whereby they  are  lost to the owner, the liability of the  bank  is absolute, though there is no element of negligence, as where delivery  is obtained by means of an artfully forged  order. In law the banker could contract out of this liability,  but he would be unlikely to do so in practice."     Before parting with the case, we may also state that  in practice,  bankers do not set up the statute of  limitations against their customers or their legal representatives,  and we  see  no reason why this case should be an  exception  to that practice.     In  the result, the appeal is dismissed with costs,  but not  for all the reasons stated by the trial court  and  the High Court. N.P.V.                                          Appeal  dis- missed. 719