judgement:
ivil Appeal No. 5675 of 1985.
From the Judgment and Order dated 2.8.1985 of the Cal cutta High Court in Appeal from Original Order Tender No. 165 of 1985.
S.N. Kaicker.
Girish Chandra and Mrs. Sarala Chandra for the Appellants.
Tapas Roy, Parijat Sinha, D.N. Mukherjee, Dalip Sinha and J.K. Das for the Respondents.
The Judgment of the Court was delivered by SEN J.
This appeal by special leave is directed against the judgment and order of the Calcutta High Court dated August 2, 1985 quashing a resolution passed by the Khargram Panchayat Samiti dated April 12, 1985 specifying that the cattle fairs run by two rival organisations r.e.
Nagar Cattle Hat run by Nagar Quorania Junior High Madrassah would be held on Saturday every week and Sherpur Cattle Hat run by Prabartak Parishad on Friday.
By the judgment under 1210 appeal, a Division Bench of the High Court has held that even though the Panchayat Samiti was vested with the power to grant licence for holding of a hat or fair under section 117 of the West Bengal Panchayat Act, 1973.
still in the absence of a rule framed under the Act it had no power to specify a day on which such hat or fair shall be held.
The issue involved is whether the Panchayat Samiti being vested with the authority to grant a licence for the holding of a hat or fair under section 117 of the Act within the limits of its terri torial jurisdiction, must necessarily be held to have the consequential or incidental power to specify a day for the holding of such hat or fair.
The facts of the case are as follows.
Ever since 1933, a cattle fair called Nagar Cattle Hat is being held on Satur day every week by the Nagar Quorania Junior High Madrassah, a charitable educational institution which runs a school and is also engaged in other social activities, which attracts a large gathering of buyers and sellers of cattle dealers within the district of Murshidabad and even beyond the district.
Since 1974, respondent No. 6 a club called Prabar tak Parishad, set up a parallel cattle fair at a place called Sherpur, about two kilometres away (as the crow flies) from the site of Nagar Cattle Hat on every Saturday, known as Sherpur Cattle Hat.
The holding of two rival cattle fairs on the same day gave rise to a feeling of rivalry couple with tension amongst the local population as also the large number of cattle dealers and peasantry attending the cattle fairs and this frequently led to violent conflicts and skirmishes between the two rival groups.
Upon a repre sentation made to him in 1980, the District Magistrate, Kurshidabad caused an inquiry to be held and by his order dated April 2, 1980 held that holding of the two cattle fairs on the same day created serious law and order problem and accordingly directed holding of the hats on two differ ent days for preservation of public peace and tranquility.
On a writ petition filed by respondent No. 6 Prabartak Parishad, a Division Bench of the High Court by its order dated June 2, 1982 struck down the impugned order of the District Magistrate on the ground that no such direction could be issued by him as the competent authority was the Khargram Panchayat Samiti.
It was observed: "The only authority which is competent to give any direction in this regard is the authority under the West Bengal Panchayat Act, 1973.
No such direction has been given by the authority under the said Act.
In the circumstances, we set aside the impugned order of the District Magistrate and the judgment of the learned Judge.
Appeal is allowed.
1211 There will be no order as to costs.
It is made clear that this order is without prejudice to any steps that may be taken in ,accordance with law by the authority under the said Act.
" In Compliance with the direction made by the High Court, the District Magistrate obviously actuated by consideration of maintenance of law and order requested the Chairman of the Khargram Panchayat Samiti to take necessary steps as the holding of rival hats in contiguous areas could not be allowed to.
continue as it gave rise to serious law and order problem.
A meeting of the Panchayat Samiti was accord ingly held on June 20, 1984 and a resolution was passed by a majority of the members that the Nagar Cattle Hat run by Nagar Quorania Junior High Madrassah would be held on Satur day as before and the Sherpur Cattle Hat run by Prabartak Parishad being of recent origin would be held on Friday.
Thereupon, respondent No. 6 filed another writ petition in the High Court challenged the impugned resolution of the Panchayat Samiti.
A learned Single Judge by his judgment and order dated January 14, 1985 quashed the impugned resolution of the Panchayat Samiti on the ground that it acted in breach of the rules of natural justice while reserving liberty to the Panchayat Samiti to come to a decision afresh after affording an .opportunity to respondent No. 6 Prabar tak Parishad to have its say before it.
Aggrieved, the appellant preferred an appeal and applied for stay.
A Divi sion Bench of the High Court by its order dated March 19, 1985 admitted the appeal but declined to grant stay.
and directed that the Panchayat Samiti should in the meanwhile comply with the order of the learned Single Judge.
As a consequence, Khargram Panchayat Samiti was constrained to give effect to the direction made by the learned Single Judge.
It accordingly issued notices to the contending parties i.e. both Nagar Quorania Junior High Madrassah and Prabartak Parishad requiring them to submit their claims for consideration.
and also fixed a date being April 12, 1985 for hearing.
On that date.
the Panchayat Samiti at its open meeting heard the representatives of the parties and scruti nised the documents placed before it.
After considering the claims of both the parties and the material record, it passed a resolution that the Nagar Cattle Hat would be held as before on Saturday every week and the Sherpur Cattle Hat would be held on Friday, and directed the Executive Officer to incorporate such a condition in the licence granted to the two organisations for holding the cattle fairs on these days.
Again, respondent No. 6 filed a writ petition before the High Court challenging the aforesaid resolution dated April 12, 1985.
A learned Single Judge by his judgment dated June 19, 1985 dismissed the writ petition in view of the pendency of the appeal before the 1212 Division Bench, pursuant to whose direction the aforesaid resolution had been passed.
Respondent No. 5 then moved the Division Bench for restraining Khargram Panchayat Samiti from giving effect to the said resolution.
The Division Bench by its judgment under appeal quashed the impugned resolution dated April 12, 1985 of Khargram Panchayat Sami ti.
It held that although in terms of section 117 of the Act the Panchayat Samiti was vested with the power of granting a licence for the holding of a hat or fair, by the framing of rr. 7, 8 and 9 of the West Bengal Panchayat (Samiti Adminis tration) Rules, 1984 the power of the Panchayat Samiti is confined to making provision for maintenance of sanitation, health and hygiene in the market area which is the essence of the power under section 117, and further that in the absence of a provision in the rules in that behalf it had no power to specify a day on which such hat or fair should be held.
It accepts that when a power is conferred on a statutory authority.
it necessarily carries with the other incidental or ancillary powers and holds that the Panchayat Samiti being vested with the power to grant a licence under section 117 of the Act had been conferred the power under rr. 7, 8 and 9 to making provision for sanitation, health and hygiene in the market area which is the essence of the power and there fore the Panchayat Samiti had tile power to see that sanita tion, health and hygiene are properly maintained and looked after, and nothing more.
In repelling the contention that the specification of a day for the holding of a hat or fair was consequential to the power to grant a licence under section 117 of the Act, it observed: "there can be no doubt that when a power is conferred on a statutory authority such power will also include other incidental or ancil lary powers without the exercise of which the main power cannot be exercised.
In the instant case however.
Panchayat Samiti has been con ferred with a power to see that sanitation, health and hygiene are properly maintained and looked after.
The provisions of Rule 9 of the Rules, as stated already, imposed certain terms and conditions on the grant of license for holding a market or hat, but all these terms and conditions relate to maintenance or sanitation, health and hygiene or supply of water or making proper lighting arrangement.
The essence of power is, therefore, the main tenance of sanitation, health and hygiene.
Many incidental powers may be exercised by the Panchayat Samiti which are directly related to the exercise of the maintenance of, sanita tion, health and hygiene.
Such powers are not provided for under Rule 9, yet they could be exercised by the Panchayat Samiti in exercise of 1213 its power under Rule 9 incidentally.
But, in our opinion.
the Panchayat Samiti cannot exercise a power which has no connection whatsoever with sanitation, health and hy giene.
The reason for fixing different days, viz., Fridays and Saturdays for the holding of the two hats, viz., apprehended breach of peace, has no connection whatsoever with the question of sanitation, health and hygiene.
Exercise of such assumed power cannot be said to be incidental or ancillary to the main power for the imposition of terms and condi tions of a licence.
In case, any broach of peace takes place.
it will be a concern of the District Magistrate to take steps for the same.
" In our judgment, the view taken by the High Court that although the Panchayat Samiti was vested with the power to grant a licence for the holding of a hat or fair under section i 17 of the Act, yet it had no consequential or incidental power to specify a day for holding of such hat or fair, is manifestly erroneous and cannot be supported.
It failed to appreciate that under the Act the power of general adminis tration of the local area vests in the Panchayat Samiti only to grant a licence to hold a hat or fair under section 117 of the Act, but such power of general administration necessarily carries with it the power to supervise, control and manage such hat or fair within its territorial jurisdiction.
The conferment of the power to grant a licence for the holding of a hat or fair under section 117 of the Act includes the power to make incidental or consequential orders for specification of a day on which such hat or fair shall be held.
The deci sion of the High Court runs counter to the well accepted principles.
It overlooks that the statutory bodies like the Panchayat Samiti enjoy a wide 'incidental power ' i.e. they may do every thing which is 'calculated to facilitate, or is conductive or incidental to, the discharge of any of their functions ' and the doctrine of ultra vires is not to be applied narrowly.
It is well accepted that the conferral of statutory powers on these local authorities must be con strued as impliedly authorising everything which could fairly and reasonably be regarded as incidental or conse quential to the power itself.
See: de Smith 's Judicial Review of Administrative Action.
4th edn., p. 95.
HWR Wade 's AdminiStrative Law, 5th edn., p. 217.
Craies on Statute Law, 6th edn., p. 276.
Attorney General vs Great Eastern Railway, ; ; Baroness Wenlock vs River Dee Co., De Smith in his celebrated work Judicial Review of Administrative Action, 5th edn.
at p. 95 puts the law tersely in these words: 1214 The House of Lords has laid down the principle that "whatev er may fairly be regarded as incidental to.
or consequent upon.
those things which the Legislature has authorised.
ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.
" This principle was.
enunciated by Lord Selborne in Attorney General vs Great Eastern Railway, supra, in these words: "The doctrine of ultra vires ought to be reasonably.
and not unreasonably, understood and applied and whatever may be fairly regarded as incidental to.
or consequential upon, those things which the legislature has authorised ought not (unless expressly prohibited) to be held, by judicial con struction.
to be ultra vires.
" These words have been quoted by Professor wade in his monumental work Administrative Law.
5th edn.
at p, 2 17 and also by Craies on Statute Law, 6th edn.
p, 276.
Craies also refers to the observations of Lord Watson in Baroness Wenlock vs River Lee Co., supra, .to the effect: "Whenever a corporation is created by Act of Parliament with reference to the purposes of the Act, and solely with a view to carrying these purposes into execution, I am of opinion not only that the objects which the corpora tion may legitimately pursue must be ascer tained from the Act itself, but that the powers which the corporation may lawfully use in furtherance of these objects must either be expressly conferred or derived by reasonable implication from its provisions," This Court in V.T. Khanrode & Ors.
vs Reserve Bank of India, ; has followed the dictum of Lord Sel borne in Great Eastern Railway 's case and reaffirmed the principle that the doctrine of ultra vires in relation to the powers of a statutory corporation have to be understood reasonable and so understood, whatever may fairly be regard ed as incidental to, or consequential upon, those things which the legislature has authorised ought not (unless expressly prohibited) to be held by judicial construction, to be ultra vires.
It had earlier been laid down by a Con stitution Bench of the case of State of Uttar Pradesh vs
Batuk Dee Pati Tripathi & Anr., [ that a power to do a thing necessarily carries with it the power to regulate the manner in which the thing may be done.
The High Court failed to apreciate that the power to grant a licence for the holding of a hat or fair under section 117 of the Act necessarily carries with it the power to specify a day on which such hat or fair shall be held.
Such power to 1215 specify a day must be held to be a power incidental to or consequential upon the principal power of issuing a licence under section 117 of the Act for holding of a hat or fair.
The rules or the absence of it do not detract from the substan tive power conferred by a statute.
The essence and content of the power of a Panchayat Samiti under section 117 of the Act is issuance of a licence for the holding of a hat or fair and not mere maintenance of sanitation, health and hygiene as held by the High Court.
For these reasons, we have no hesitation in reversing the judgment of the High Court.
The appeal must accordingly succeed and is allowed.
The judgment and order passed by the High Court are set aside and the writ petition is dismissed.
No. costs.
A.P.J. Appeal al lowed.

summary:
Ever since 1933, a cattle fair called Nagar Cattle Hat is being held on Saturday every week by the Nagar Quorania Junior High Madrassah.
Since 1974, respondent No. 6, a club called Prabartak Parishad set up a parallel cattle fair at Sherpur, about two kilometres away from the site of Nagar Cattle Hat on every Saturday, known as Sherpur Cattle Hat.
The holding of two rival cattle fairs on the same day gave rise to feeling of rivalry couple with tension and this frequently led to violent conflicts and skirmishes between the two rival groups.
Upon a representation made to him, the District Magis trate, Murshidabad caused an inquiry to be held, and held that holding of the two cattle fairs on the same day created serious law and order problem and accordingly directed holding of the hats on two different days for preservation of public peace and tranquility.
a writ petition filed by the respondent No. 6 the High Court struck down the order of the District Magistrate on the ground that no such direction could be issued by him as the competent authority was the Khargrar Panchayat Sami ti.
In compliance with the directions made by the Court, the Panchayat Samiti passed a resolution that the Nagar Cattle Hat run by Nagar Quorania Junior High Madrassah would be held on Saturday and the Sherpur Cattle Hat run by Prabartak Parishad would be held on Friday.
1208 Respondent No. 6 filed another writ petition challenging the said resolution.
A Single Judge quashed the resolution of the Panchayat Samiti on the ground that it acted in breach of the rules ' of natural justice while reserving liberty to the Panchayat Samiti to come to a decision afresh after affording an opportunity to respondent No. 6.
The appeal preferred by the Panchayat Samiti was admit ted, but the Division Bench declined to grant stay and directed that the Panchayat Samiti should.
comply with the order of the Single Judge.
Consequently, the Panchayat Samiti issued notices to the contending parties requiring them to submit their claims for consideration.
The Panchayat Samiti after considering the claims of both parties and the material record, passed a resolution that the Nagar Cattle Hat would be held on Saturday every week and the Sherpur Cattle Hat would be held on Friday, and directed the Execu tive Officer to incorporate such a condition in the licence granted to the two organisations for holding the cattle fairs on these days.
Again, respondent No. 6 filed a writ petition challeng ing the resolution dated April 12, 1985.
A Single Judge dismissed the writ petition.
Respondent No. 6 then moved the Division Bench for restraining the Panchayat Samiti from giving effect to the said resolution.
The Division Bench quashed the resolution dated April 12, 1985 holding that although in terms of section 117 of the Act, the Panchayat Samiti was vested with the power of granting a licence for the holding of a hat or fair, by the framing of rr. 7, 8 and 9 of the West Bengal Panchayat (Samiti Administration) Rules, 1984 the power of the Panchayat Samiti is confined to making provision for maintenance of sanitation, health and in the market area which is the essence of the power under section 117, and further that in the absence of a provision in the rules in that behalf it had no power to specify a day on which such hat or fair should be held.
Allowing the Appeal, HELD: 1.
The view taken by the High Court that although the Panchayat Samiti was vested with the power to grant a licence for the holding of a hat or fair under section 117 of the West Bengal Panchayat Act, 1973, yet it had no consequential or incidental power to specify a day for holding of such hat or fair, is manifestly erroneous.
[1213C D] 2.
The power to grant a licence for the holding of a hat or fair under section 117 of the Act necessarily carries with it the power to specify a day on which such hat or fair shall be held.
Such power to specify a day must be held to be a power incidental or consequential upon the principal power of issuing a licence under section 117 of the Act for holding of a hat or fair.
[1214H; 1215A] 1209 3.
The rules or the absence of it do not detract from the substantive power conferred by a statute.
[1215A B] 4.
The essence and content of the power of a Panchayat Samiti under section 117 of the Act is issuance of a licence for the holding of a hat or fair and not mere maintenance of sanitation, health and hygiene as held by the High Court.
[1215B] 5.
It is well accepted that the conferral of statutory powers on local authorities must be construed as impliedly authorising everything which could fairly and reasonably be regarded as incidental or consequential to the power itself.
[1213F G] 6.
The doctrine of ultra. vires is not to be applied nar rowly.
[1214B C] De Smith 's Judicial Review of Administrative Action, 4th edn., p. 95; HWR Wade 's Administrative Law, 5th edn., p. 217; Craies on Statute Law, 6th edn., p. 276; Attorney General vs Great Eastern Railway, ; ; Baro ness Wenlock vs River Dee Co., ; V.T. Khanzode & Ors.
vs Reserve Bank of India, ; and State of Uttar Pradesh vs Batuk Deo Pati Tripathi & Anr., , relied upon.


judgement:
ON: Civil Appeal No. 1777 of 1973.
From the Judgment and Decree dated 25.6.1973 of the Karnataka High Court in Regular First Appeal No. 56 of 1968.
K.N. Bhatt, V.K. Verma and Ms Madhu Moolchandani for the Appellants.
S.S. Javali and B .R.
Agarwala for the Respondents.
The Judgment of the Court was delivered by 1142 KHALID, J.
This is an appeal by certificate.
against the Judgment dated 25th June, 1972, passed by a Division Bench of the Karnataka High Court.
The 1st defendant Bank is the appellant.
Original Suit No. 72 of 1962 was filed in the Court of Civil Judge.
Mangalore, by the Canara Sales Corporation, Ltd. through its Managing Director, V.S. Kudva.
He died during the pendency of the suit and the suit was continued by the succeeding Managing Director of the Corporation.
The suit was against two defendants: the appellant Bank was the first defendant and the second defendant was one Y.V, Bhat who was the Chief Accounts Officer of the plaintiff, till 1961.
He died during the pendency of the appeal before the High Court and his legal representatives were brought on record.
When the suit was filed, the appellant Bank was called the Canara Bank Ltd.
After the nationalisation of banks it became the Canara Bank which is the appellant before us.
The suit was instituted for recovery of a sum of Rs.3,26,047.92.
with the following allegations: The plain tiff is a private Limited Company with its head office at Mangalore.
It had a current account with the appellant Bank in its Mangalore Bunder branch.
The Managing Director of the company and the General Manager of a sister concern of the company had been authorised to operate the said current account of the plaintiff with the Bank.
The second defendant was attending to the maintenance of accounts of the plain tiff and was also in charge and custody of the cheque books issued by the Bank to the plaintiff.
In March, 1961, the second defendant was absent from duty for some time.
During that period one A. Shenoy, who was the Assistant of the second defendant was directed to bring the accounts upto date.
During this process, he noticed certain irregularities in the account and brought this to the notice of the plain tiff.
On verification, it was found that cheques purporting to bear the signature of Shri V.S. Kudva were encashed though they did not bear his signature.
In other words the signatures were forged.
On 25 3 196 1, a complaint was made by the plaintiff with the Superintendent of Police.
The plaintiff appointed a firm of Chartered Accountants to conduct special audit of the company 's accounts, for the years 1957:58 to 1960 61.
This special audit disclosed that the second defendant had withdrawn, in all, a sum of Rs.3,26,047.92 under 42 cheques.
The suit was filed for recovery of the amount on the plea that the amounts as per the forged cheques were not utilized for the purpose of the plaintiff, that they were not authorised ones, that there was no acquiescence or ratification open or tacit on the part of the plaintiff, that the plaintiff was unaware of the 1143 fraud till the new accountant discovered it.
The appellant Bank resisted the suit on the following grounds in their written statement: (i) That the cheques were not forged ones.
(ii) Even if they were forged ones the plaintiff was not entitled to recover the amount on account of its own negli gence.
(iii) There was settlement of accounts between the parties from time to time and as such the plaintiff was not entitled to reopen the same and claim the sums paid under the cheques in question.
(iv) The suit was barred by limitation.
The second defendant pleaded that the cheques were not forged ones and the amounts recovered by the cheques were utilized for the purpose of the plaintiff.
The Trial Court negatived the contentions of the first defendant Bank and passed a decree for the sum claimed, with interest at 6% from the date of the suit till recovery of the amount.
In appeal before the Division Bench, the judg ment of the Trial Court was confirmed.
The High Court certified that the case involved substan tial questions of law of general public importance and granted certificate to file the appeal.
It is thus that this appeal has come before us.
Venkataramiah, J. as he then was, who spoke for the Bench, has in his detailed Judgment considered all the aspects of the case both on facts and on law and agreed with the Trial Court that the suit had to be decreed, repelling the contentions raised by the first defendant.
The courts have concurrently found that the cheques were forged and that the second defendant was responsible for it.
We do not propose to consider the question of facts in this Judgment.
The learned counsel for the appellant, Shri Bhat argued the case at length and took us through various authorities, bearing on the question, most of which fell for considera tion at the hands of the High Court also.
In the instant case.
42 cheques with forged signature were presented on various dates between the year 1957 and 1961.
During the said period the appellant Bank used to send to the plaintiff respondent 1144 pass sheets containing the debit and credit entries in the current account of the plaintiff with the Bank every month and at the end of every half year ending 30th June and 31st December, a letter used to be sent asking the respondent to confirm that the balance in his account with the Bank was as mentioned in the letter.
Till March.
1961 the correctness of the entries in the pass sheets and half yearly statements was not questioned by the plaintiff.
The accounts of the plaintiff company were being audited as required by the Companies Act by Chartered Accountants.
The Bank contended that if there was mis appropriation of an amount of nearly Rs.3 lacs by forged cheques by the second defendant this would have been detected by the Chartered Accountants and would have come to the notice of the plaintiff company.
The several entries in the books of account maintained by the plaintiff company show that all the amounts covered by the cheques in dispute had been credited in the books.
The Managing Director of the plaintiff company himself admitted that he had received the periodical statements and that he did not at any time intimate the Bank about the incorrect ness either in the pass sheets or in the letters.
The inac tion on the part of the plaintiff company and its Managing Director in not informing the Bank of the irregularities in the account and deliberately withholding such information from the Bank, according to the Bank.
constituted negli gence.
disentitling the plaintiff from claiming any amount from the Bank in respect of forged cheques.
Alternatively it was contended that the principle of estoppel operated against the plaintiff from claiming the amount, on the ground of adoption or acquiescence.
The case of the appellant can be summarised as follows: After reasonable opportunities are given to the customer to examine the Bank statements.
its debit entries should be deemed to be final and will not be open for reconstruction to the detriment of the bank.
Of course.
what is a reasona ble opportunity will depend on the facts of each case.
In law, there can always be a settled or stated account between the banker and the customer.
The question to be decided here is whether acceptance by the customer without protest of a balance struck in the pass book or statement of account constitutes a settled account.
It is submitted that this aspect of the Banking law has not yet been authorita tively decided by this Court and invited us to pronounce upon it.
On the question of estoppel it was contended that a repre senta 1145 tion may be made either by statement or by conduct: and conduct included negligence, silence, acquiescence or en couragement.
If a customer of a bank, by his negligence to give timely information of forged cheques, allows amount to be drawn on such cheques.
the debit will stand for the whole amount and the customer will be estopped from claiming the amount.
If timely information was given, the Bank could have acted to ward off the mischief.
It was further contended that inaction for a long period would amount to such negligence, as would persuade a Court to impute to the customer, with knowledge or at any rate constructive knowledge, to decline him, relief in an action for recovery of amounts, which would be to the detriment of an innocent party, namely the Bank.
For this purpose.
dictionary meanings of the word 'know ledge was brought to our notice.
"Knowledge may include not only actual knowledge, i.e. actual awareness of the facts relevant.
but constructive knowledge.
i.e. knowledge at tributed by law to the party in the circumstances, whether he actually had the knowledge or not, and knowledge may be attributed to a person who has sought to avoid finding out, or has shut his eyes to obvious means of knowledge.
e.g. the man who is offered valuables cheaply in circumstances which suggest that they may well have been stolen.
but who refrains from enquiry".
Black 's Law Dictionary Fifth Edn. defines.
"Constructive knowledge" as "If one by exercise of reasonable care would have known a fact.
he is deemed to have had costructive knowledge of such fact, e.g., matters of public record".
"Notice" means "bringing it to a person 's knowledge".
Then he referred us to the Transfer of Property Act.
Trusts Act, Law of Agency.
etc. to contend that a person is said to have noticed of a fact when but for wilful absten tion from an enquiry.
he would have known it and that in equity a man who ought to have known a fact should be treat ed as if he actually does know it.
He then developed his submission as follows: It is accepted to be a duty of customer who knows that his cheques are being forged, to inform the bank.
If he fails to give such an information, he is estopped from claiming that the cheques were forged.
In law.
there should be no differ 1146 ence in the consequence between a person having constructive knowledge and a person having actual knowledge.
Thus a person having constructive knowledge of a matter.
cannot be allowed to take advantage of his own negli gence.
According to him the terms of contract between a banker and its customer can never be complete unless there is an implied condition that the customer was under a duty to examine the statement to account, particularly when the bank issues a notice that if no errors are pointed out within a specified time.
the bank will proceed to believe that there are no errors.
Such a notice imposes on a customer a duty to react and failure to react would amount to negligence, leading to estoppel.
The company 's Balance Sheet for four years clearly show that the auditors have examined the books and vouchers.
It is in evidence (spoken to by PW 8) that the balance sheets were adopted by the general bodies for four successive years.
This shows that the statements of account.
given by the Bank was accepted as such.
There is a duty on the part of the Company 's directors to present a correct Balance Sheet.
Negligence to verify the obvious things.
like examining the counterfoil of cheques amounts not only to estoppel but to adoption and ratifica tion.
for, no one can take shelter under one 's own failure to examine the obvious.
Further, the annual reports are to be treated as public documents and public are likely to rely upon its representation and defendant bank is, at any rate, a member of the public.
We have set out above, the contentions of the appellant, in detail, so as to bring into focus, the questions of law to be decided in the appeal.
Now we propose to consider the submissions made by the appellant to test their validity qua the Banking Law, ap plicable to India.
It is true that there is no direct au thority of this Court on this Branch of the Law.
It is.
therefore, necessary to briefly outline the confines of this Branch of law.
The relationship between the customer of a bank and the bank is that of a creditor and debtor.
When a cheque which presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque.
The bank would be acting 1147 against law in debiting the customer with the amounts cov ered by such cheques.
When a customer demands payment for the amount covered by such cheques.
the bank would be liable to pay the amount to the customer.
The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adop tion.
estoppel or ratification.
The principle of law regard ing this aspect is as follows: When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by.
the cheque.
However.
if the signature on the cheque is not genuine.
there is no mandate on the bank to pay.
The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it.
This is because a document in cheque form, on which the customer 's name as drawer is forged, is a mere nullity.
The bank can succeed only when it establishes adoption or estoppel.
The relationship between a bank and its customers indi rectly arose before this Court in Bihta Co operative Devel opment Cane Marketing Union Ltd. & Anr.
vs The Bank of Bihar & Ors., ; In that case a suit was filed by a Society registered under the Bihar and Orissa Co operative Societies Act, 1935, and its Secretary.
This Society had an account with the first defendant Bank.
The and 7th defend ants were respectively its Joint Secretary and Treasurer.
A sum of Rs.11,000 was withdrawn from the account by means of a cheque, not from the cheque book of the Society, but from a loose cheque leaf surrendered by an ex constitutent of the bank.
It bore the signature of the 7th defendant but the forged signature of the 6th defendant.
The suit against the bank, its manager and other employees was decreed by the Trial Court and confirmed by the High Court on the question relevant for our purpose but dismissed on the ground juris diction.
The question before us in this appeal was consid ered by this Court with reference to a Judgment of the House of Lords in London Joint Stock Bank Ltd. vs Macmillan, It was argued before this Court that the decree against the bank could not be sustained since even though there was negligence on the part of the bank and its employees, the plaintiffs ' Society was not altogether free from blame or negligence in that but for the part played by at least one 1148 of its employees in the matter of encashment of the cheque for Rs.11,000 the fraud could not have been perpetrated.
It was also argued that if both the parties were negligent or blameworthy.
the plaintiffs claim ought not to succeed.
It was, in this connection that Macmillan 's case fell for reference.
Being a landmark case, we would set out the facts of that case in brief: The plaintiffs, Macmillan etc.
brought a suit against the London Stock Bank for a declaration that the bank was not entitled to debit the plaintiffs with a cheque for pound 120.
The plaintiffs had in their employment a confidential clerk who made out cheques and got the signature of part ners.
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.
The next day the clerk did not turn up.
The partners became suspicious and went to the bank.
when they discovered that the cheque for pound.
2 was distorted by using the space on either side of the figure '2 ' by the clerk by insertion of additional figures 1 & 0 and thus he pocketed pound.
The question before the House of Lords 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 plaintiffs were not guilty of negligence in the mode of signing the cheque and decreed the suit.
The Court of Appeal upheld this decision.
The House of Lords reversed the judgment.
We may usefully quote the following passages from the Judgment.
Lord Finlay observed: "As the customer and the banker are under a contractual relation in this matter.
it ap pears 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 every one 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 further observed: Of course the negligence must be in the trans action 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 1149 character.
Attempts have often been made to extend the principle of Young vs Grote, ; 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 re sults.
No one can be certain of preventing forgery, but it is a very simple thing in drawing a cheque to take reasonable and ordi nary 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.
" The principles so settled by the House of Lords was pressed into service before this Court in the above case.
This Court held that the principle settled by the House of Lords could not help the bank.
The accepted principle that if the signatures on the cheque is genuine, there is a mandate by the customer to the bank to pay was reiterated.
It was also held that if an unauthorised person got hold of such a cheque and encashed it, the bank might have had a good defence hut, however, if the signatures on the cheque or at least one of the signatures are 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.
This Court distinguished Macmillan 's case, observing that if any of the signatures was forged the question of negligence of the customer in between the signature and the presenta tion of the cheque never arose.
The suit was, however, dismissed on another point and that of jurisdiction.
That takes us to the question as to whether there is a duty on the part of the customer to examine the pass book and inner part of cheques and to communicate to the banker within a reasonable time of the debits which he does not admit.
1150 The kindered question connected with this is whether a customer is estopped from disputing the debits shown in the pass book when the pass book is returned without any comment and whether such a conduct would constitute a "stated and settled account." To answer this it is necessary to examine the question whether the customer owes a duty to the bank to inform it about the correctness or mis statements in the entries in the pass book within a reasonable time and wheth er failure to do so would amount to such negligence as to non suit him in a suit for recovery of the amount paid on a forged cheque.
When does negligence constitute estoppel ? For negligence to constitute an estoppel it is necessary to imply the existence of some duty which the patty against whom estoppel is alleged owes to the other party.
There is a duty of sorts on the part of the customer to inform the bank of the irregularities when he comes to know of it.
But by mere negligence One cannot presume that there has been a breach of duty by the customer to the bank.
The customer should not by his conduct facilitate payment .of money on forged cheques.
In the absence of such circumstances, mere negligence will not prevent a customer from successfully suing the bank for recovery of the amount.
A case of acquiescence also cannot be flourished against the plaintiff.
In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised, had remained silent about the matter regarding which the plea of acquiescence is raised, even after knowing the truth of the matter.
As indicated above, the plaintiff did not, during the relevant period, when these 42 cheques were encashed, know anything about the sinister design of the second defendant.
If the bank had proved to the satisfaction of the Court that the plaintiff had with full knowledge acknowledged the correctness of the accounts for the relevant period, a case of acquiescence against the plaintiff would be available to the bank.
That is not the case here.
In this judgment under appeal, the High Court has elabo rately considered the law obtaining in the United States of America on this aspect.
We need not exercise ourselves with the American Law since the American Law is different from the law that we follow.
On the questions involved in this appeal, it is the .law that obtains in England which had been followed by this Court and High Courts in the country.
The authorities in England have more or less consistently held that there is no duty on the part of the customer to intimate the banker about any error that may be seen in the pass book and that he will be entitled to claim any amount paid on a forged cheque though there may be some negligence or in action on his part in not being careful to 1151 discover the errors in the pass book or other documents.
In the instant ease, there is no evidence to show that anyone other than the second defendant knew that the forged cheques had been encashed.
After the matter was discovered, immedi ate action was taken.
Therefore, in the absence of any evidence of the plaintiff 's involvement, the plaintiff cannot be nonsuited on the ground of negligence or in ac tion.
Venkatramiah, J when he rendered the Judgment, under appeal, laid down the law correctly, with the aid of author ities then available and on his own reasons.
Now we are in a more advantageous position.
We have an authority, more or less identical on facts, rendered by the Privy Council in the decision in Tai Hing Cotton Ltd. vs Liu Chong Bank, [1985] 2 All England Reports 947.
The facts of this case are similar to the case on hand; if anything, more to the disadvantage to the bank in terms of money involved than the instant case.
The appellant before the Privy Council was a company, a textile manufac turer carrying on business in Hong Kong.
The company was a customer of the three respondent banks and maintained with each of them a current account.
The banks were authorised to pay cheques on behalf of the company if signed by its Manag ing Director or two authorised signatories.
The banks agreed to send the appellant periodic statements which were deemed to be confirmed unless the customer notified the bank of any error therein by a specified time.
Between 1972 and 1978 the accounts clerk employed by the company forged the signature of the Managing Director on 300 cheques purported to be drawn by the company for a total sum of $HK.5.5 million.
The banks paid the cheques on presentation by the clerk and debited the company 's current account accordingly.
The clerk was able to manipulate the accounts without any obstruction or discovery because he was in almost sole control of the receipts and payments made through the accounts.
As in this case, the fraud was uncovered in May, 1978, when a newly appointed accountant commenced reconciling the bank state ments with the company 's books.
This was an exercise which had not been followed previously.
The new accountant found at once that something was seriously wrong.
He reported the matter to the Managing Director.
The errant accountant was interrogated and he admitted the frauds.
The company took action against the banks, the accountant and his wife.
The Trial Judge basing his decision on the fundamental premise that a forged cheque is no mandate to pay held that unless the bank established affirmatively that they were entitled to debit the customers current account with the amounts of the forged cheques, the customer was entitled to the relief 1152 of the loss arising from the bank 's payment on the forged cheques.
A case was put forward before the Trial Judge that the Company was vicariously liable for the fraud played by its accountant.
This was negatived and was not pursued.
The Trial Judge also rejected the submission of the banks that their terms of business which was contractual called the banking contract, should be construed as ousting the common law rule.
The defence included one of estoppel raised by each of the banks.
The plea of estoppel was put forward in two ways; first, that the company was estopped by its negli gence in the management of its bank accounts from asserting that the accounts had been wrongly debited, and second, that the company was estopped by a representation to be implied from the course of conduct that the periodic bank statements were correct.
The Trial Judge rejected the plea of estoppel by negligence but held: " . .
In the case of each bank the company by failing to .
challenge the debits shown on the bank statements, had represented to each bank that the debits had been correctly made.
He held that Tokyo and Chekiang had acted in reliance on the representations so made by their willingness to continue operating their respective accounts and to expose themselves to the risk of paying out on forged cheques.
He did not find the same prejudice had been suffered by Liu Chong Hing as it only became exposed to the fraud in November 1977, the first representation to it not being made until the company 's failure.
to query the December 1977 statement of account.
The Judge found that the chance of recovery from Leung had not been substantially diminished during the period (December 1977 to May 1978) during which it could be said that the estoppel was operative.
" On this finding the Judge gave the company Judgment against one bank, but dismissed its claims against the other two banks.
The company appealed and the defeated banks cross appealed.
The Court of appeal differed from the Trial Judge on the general question.
The Court of appeal evolved a theory that the banker/customer relationship is such as to give rise to a general duty of care in the operation of its banking account and on this basis held that the company was in breach of the duty which they held, it owed to the banks and must bear the loss.
According to the Court of appeal this duty arose in tort as well as in contract.
There was difference of opinion among the Judges as to whether the in action on the part of the customer in not objecting 1153 to the statement sent by the bank within the time specified would constitute conclusive evidence of the correctness of the debits recorded therein or whether the banking contracts could be construed as including a term requiring the monthly statements to be treated after a period of time as conclu sive evidence of the state of the account.
But all of them were agreed that estoppel operated against the company by its own negligence from challenging the correctness of the banks statements.
The banks thus succeeded in the Court of appeal.
The defeated company moved the Judicial Committee of the Privy Council by filing appeals.
This was how the matter reached the Privy Council.
The Privy Council had to decide the case in the light of the law settled by the House of Lords in the Macmillan 's case and in Greenwood vs Martins Bank Ltd.; = 1932 All England Reports 3 18.
The Privy Council posed two questions before it, first, whether English law recognises any duty of care owed by the customer to his bank in the operation of a current account beyond, first, a duty to refrain from drawing a cheque in such a manner as may facil itate fraud or forgery and, second, a duty to inform the bank of any forgery of cheque purportedly drawn on the account as soon as he, the customer, becomes aware of it.
The respondent banks while recognising the existence of both the duties indicated above contended that the law had evolved in England after 19 18 and 1933 in recognising an altogether wider duty of care.
This duty, according to them, required the customer to take reasonable precautions in the management of his business with the bank to prevent forged cheques being presented to it for payment.
Additionally, it was contended.
that even if this wider duty did not exist.
at any rate the customer owed a duty to take such steps to check the periodic bank statements sent to him as a reasona ble person in his pOsition would take to enable him to notify the bank of any debit items in the account which he had not authorised, When it is accepted that the bank sent periodic statements to the customer, the bank contended that the duty and responsibility to look into such statements and to notify to the bank were necessary incidents of the con tractual relationship between the customer and the bank.
The source of this obligation according to the banks is to be found both in the contract law as an implied term of the banking contract and in the tort law as a civil obligation arising from the relationship of banker and customer.
Then the Privy Council proceeded to consider the weightier sub 1154 missions advanced by the bank (1) a wider duty on the part of the customer to act with diligence which must be implied into the contract and alternatively that such a duty arises in tort from the relationship between banker and customer.
The Privy Council parted company with the observation by the Court of Appeal here and repelled the plea that it was necessary to imply into a contract between a banker and the customer a wider duty and that it was not a necessary inci dent of banker customer relationship that the customer should owe his banker a wider duty of care.
This duty is in the form of an undertaking by the customer to exercise reasonable care in executing his written orders so as not to mis lead the bank or to facilitate forgery.
The Privy Coun cil accepted that an obligation should be read into the contract as the nature of this contract implicity requires.
In other words 'the term sought to be implied must be one without which the whole 'transaction would become futile and inefficacious. ' After referring to some earlier decisions, the Privy Council rejected the implied term 'submission ' and set out the limits of the care of the customer and the functions of the banks in the following words: " .
One can fully understand the com ment of Cons JA that the banks must today look for protection.
So be it.
They can increase the severity of their terms of business and they can use their influence as they have in the past, to seek to persuade the legislature that they should be granted by statute 'fur ther protection.
But it does not follow that because they may need protection as their business expands the necessary incidents of their relationship with their customer must also change.
The business of banking is the business not of the customer but of the bank.
They offer a service, which is to honour their customer 's cheques when drawn on an account in credit or within an agreed overdraft limit.
If they pay out on cheques which are not his, they are acting outside their mandate and cannot plead his authority in justification of their debit to his account.
This is a risk of the service which it is their business to offer.
The limits set to the risk in the Macmillan and Greenwood cases can be seen to be plainly necessary incidents of the relationshi p. Offered such a service, a customer must obviously take care in the way he draws his cheque, and must obviously warn his bank as soon as he knows that a forger is operating the account . . " The limits of the duty and the confines of contractual obligation cannot be expressed better.
1155 On the question of tort also the bank could not satisfy the Privy Council as is seen from the following observation: "Their Lordships do not believe that there is anything to the advantage of the law 's development in searching for a liability in tort where the parties are in a contractual relationship.
This is particularly so in a commercial rela tionship.
Though it is possible as a matter of legal seman tics to conduct an analysis of the rights and duties inher ent in some contractual relationships including that of a banker and customer either as a matter of contract law when the question will be what.
if any.
terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties.
their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analy sis on principle because it is a relationship in which the parties have.
subject to a few exceptions, the right to determine their obligations to each other.
and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action . " Their Lordships of the Privy Council sumed up the Law, as followers: 'Their Lordships do not, therefore, embark on an investiga tion whether in the relationship of banker and customer it is possible to identify tort as well as contract as a source of the obligations owed by the one to the other.
Their Lordships do not, however, accept that the parties ' mutual obligations in tort can be any greater than those to be found expressly or by necessary implication in their con tract.
If, therefore, as their Lordships have concluded, no duty wider than that recognised in Macmillan and Greenwood can be implied into the banking contract in the absence of express terms to that effect, the respondent banks cannot rely on the law of tort to provide them with greater protec tion than that for which they have contracted.
Having rejected the plea of implied terms, indirectly con structive 1156 notice and estoppel by negligence, it was held that the company was not under any breach of duty owed by it to the banks and as such mere silence, omission or failure to act is not a sufficient ground to establish a case in favour of the bank to non suit its customer.
We adopt the reasoning indicated above with great re spect.
Unless the bank is able to satisfy the Court of either an express condition in the contract with its custom er or an unequivocal ratification it will not be possible to save the bank from its liability.
The banks do business for their benefit.
Customers also get some benefit.
If banks are to insist upon extreme care by the customers in minutely looking into the pass book and the statements sent by them, no bank perhaps can do profitable business.
It is common knowledge that the entries in the pass books and the state ments of account sent by the bank are either not readable, decipherable or legible.
There is always an element of trust between the bank and its customer.
The bank 's business depends upon this trust.
Whenever a cheque purporting to be by a customer is presented before a bank it carries a man date to the bank to pay.
If a cheque is forged there is no such mandate.
The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques.
In action for continuously long period cannot by itself afford a satisfactory ground for the bank to escape the liability.
The plaintiff in this case swung into action immediately on the discovery of the fraud committed by its accountant as in the case before the Privy Council.
We may, in passing.
refer to a decision of this court on the question of negligence under circumstances not strictly akin to the case on hand reported in the New Marine Coal Co. (Bengal) Pvt. Ltd. vs Union of India, ; There the suit was for recovery of certain amount represent ing the price of coal supplied to the respondent.
Inter alia the respondent pleaded in defence of the suit that the respondent had issued and sent bills to cover the amount and the intimation cards in accordance with the usual practice in the ordinary course of dealings.
The respondents it was alleged paid the amount by cheque to a person authorised by the appellant and on presentation of proper receipts.
It was pleaded that the appellant 's claim having been satisfied he had no cause of action.
It was established in the course of the trial that the appellant had not in fact authorised any person to issue the receipts but a certain person not con nected with the appellant firm without the consent or knowl edge of the appellant got hold of the intimation cards and bills addressed to the appellant.
forged the documents and fraudulently received the cheque from the respondent and 1157 appropriated the amount for himself.
We may usefully read the following passage relating to negligence in the context of a plea based on estoppel: ". .
Apart from, this aspect of the matter, there is another serious objection which has been taken by Mr. Setalved against the view which prevailed with Mukharji J. He argues that when a plea of estoppel on the ground of negligence is raised, negligence to which reference is made in support of such a plea is not the negligence as is understood in popu lar language or in common sense; it has a technical denota tion.
In support of a plea of estoppel on the ground of negligence.
it must be shown that the party against whom the plea is raised owed a duty to the party who raises the plea.
Just as estoppel can be pleaded on the ground of misrepre sentation or act or omission.
so can estoppel be pleaded on the ground of negligence; but before such a plea can suc ceed, negligence must be established in this technical sense.
As Halsbury has observed: 'before anyone can be estopped by a representation inferred from negligent con duct.
there must be a duty to use due care towards the party misled, or towards the general public of which he is one. ' There is another requirement which has to be proved before a plea of estoppel on the ground of negligence can be upheld and that requirement is that 'the negligence on which it is based should not be indirectly or remotely connected with the misleading effect assigned to it, but must be the proxi mate or real cause of that result. ' Negligence.
according to Halsbury, which can sustain a plea of estoppel must be in the transaction itself and it should be so connected with the result to which it led that it is impossible to treat the two separately.
This aspect of the matter has not been duly examined by Mukharji.
J. when he made his finding against the appellant.
" This is how this Court understood how a plea of estoppel based on negligence can be successfully put forward.
We have seen that there is no duty for a customer to inform the bank of fraud committed on him.
of which he was unaware.
Nor can in action for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss.
Thus the contentions put for 1158 ward by the bank cannot be accepted to defeat the plaintiff.
The various submissions made by the counsel for the bank based on constructive notice in the general law and on other branches of law cannot be extended to relationship between a bank and its customers.
On a careful analysis of the questions of law, we hold that the judgment of the High Court and that of the Trial Judge have to be upheld.
We do so.
We accordingly dismiss the appeal with costs of the 1st respondent.
N.P.V. Appeal dis missed.

dataset_name: IN-Abs

summary:
The respondent company had a current account with the lant bank in its Mangalore Builder Branch.
The Manag ing Director of the company and the General Manager of a sister concern of the company had been authorised to operate the said current account.
The second defendant was attending to the maintenance of accounts of the respondent company and was also in charge and had the custody of the cheque book issued by the Bank to the respondent company.
During the process of bringing the accounts upto date certain irregu larities were noticed in the account and on verification it was found that cheques purporting to bear the signature of the Managing Director were encashed, though they did not bear 'his signature.
A complaint was lodged by the respond ent Company with the police and a special audit of the company 's accounts for the years 1957 58 to 1960 61 by a firm of Chartered Accountants disclosed that the second defendant had withdrawn a sum of Rs.3,26.047.92 under 42 cheques.
A suit was filed for the recovery of the said amount on the plea that the amounts as per the forged cheques were not utilised for the purpose of the respondent company.
that they were not authorised ones.
that there was no acquiescence or ratification open or tacit on the part of the respondent company and that the respondent was unaware of the fraud till the new accountant discovered it.
The appellant bank resisted the suit on the grounds (1) that the cheques were not forged ones; (2) that even if they were forged ones.
the company was not entitled to recover the amount on account of its own 1139 negligence; (3) that there was settlement of accounts be tween the parties from time to time and as such.
the company was not entitled to reopen the same and claim the sums paid under the cheques; and (4) that the suit was barred by limitation.
The second defendant pleaded that the cheques were utilised for the purpose of the company.
The trial Court negatived the contentions of the bank and passed a decree for the sum claimed with interest at 6%.
In appeal the Division Bench confirmed the judgment of the trial court but as the case involved substantial ques tions of law of general public importance it granted a certificate to file the appeal.
In the appeal before this Court it was contended on behalf of the appellant that: (1) after reasonable opportu nities are given to the customer to examine the bank state ments, its debit entries should be deemed to be final and will not be open for reconstruction to the detriment of the bank; (2) a representation may be made either by statement or by conduct, and conduct included negligence, silence, acquiescence or encouragement, and if a customer of a bank, by his negligence, to give timely information of forged cheques, allows amount to be drawn on such cheques.
the debit will stand for the whole amount and the consumer will be estopped from claiming the amount; and (3) in action for a long period would amount to such negligence as would persuade a court to impute to the customer with knowledge or at any rate constructive knowledge,_to decline him relief in an action for recovery of amounts which would be to the detriment of an innocent party, namely, the bank.
Dismissing the appeal.
HELD: 1.
When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by the cheque.
However.
if the signature on the cheque is not genuine.
there is no mandate on the bank to pay.
The bank.
when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it.
This is because a document in cheque form.
on which the customer 's name as drawer is forged.
is a mere nullity.
[1147B D] 2.
The relationship between the customer of a bank and the bank is that of a creditor and debtor.
When a cheque presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque.
The bank would be acting against law 1140 in debiting the customer with the amounts covered by such cheques.
When a customer demands payment for the amount covered by such cheques, the bank would be liable to pay the payment to the customer.
The bank can succeed in denying payment only when it establishes that the customer is disen titled to make a claim either on account of adoption, estop pel or ratification.
[1146G H; 1147A B] For negligence to constitute an estoppel.
it is neces sary to imply the existence of some duty which the party against whom estoppel is alleged owes to the other party.
There is a duty of sorts on the part of the customer to inform the bank of the irregularities when he comes to know of it.
But by mere negligence.
one cannot presume that there has been a breach of duty by the customer to the bank.
The customer should not by his conduct facilitate payment of money on forged cheques.
In the absence of such circum stances.
mere negligence will not prevent a customer from successfully suing the bank for recovery of the amount.
[1150B D] 4.
In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised.
had remained silent about the matter regarding which the plea of acquiescence is raised.
even after knowing the truth of the matter.
[1150D E] 5.
There is no duty for a customer to inform the bank of a fraud committed on him, of which he was unaware.
Nor can in action for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss.
[1157G H] 6.
There is no duty on the part of the customer to intimate the banker about any error that may be seen in the pass book and he will be entitled to claim any amount paid on a forged cheque though there may be some negligence or in action on his part in not being careful to discover the errors in the pass book or other documents.
Banks do business for their benefit.
Customers also get some benefit.
If banks are to insist upon extreme care by the customers in minutely looking into the pass book and the statements sent by them, no bank perhaps can do profita ble business.
It is common knowledge that the entries in the pass books and the statements of account sent by the bank are either not readable.
decipherable or legible.
There is always an element of trust between the bank and its custom er.
The bank 's business depends upon this trust.
[1156B D] 1141 8.
Whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay.
If a cheque is forged there is no such mandate.
The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques.
In action for continuously long period cannot by itself afford a satisfac tory ground for the bank to escape the liability.
[1156D E] 9.
In the present case.
during the relevant period when 42 cheques were encashed, the company did not know anything about the sinister design of the second defendant.
Since the bank had not proved to the satisfaction of the court that the company had with full knowledge acknowledged the cor rectness of the accounts for the relevant period the case of acquiescence cannot be flourished against the company.
There is no evidence to show that any one other than the second defendant knew that the forged cheques had been encashed.
After the matter was discovered immediate action was taken.
Therefore, in the absence of any evidence of the respondent company 's involvement.
it cannot be non suited on the ground of negligence or in action.
Unless the bank is able to satisfy the court of either an express condition in the contract with its customer or an unequivocal ratifica tion it will not be possible to save the bank from its liability.
[1150E F; 1151A B; 1156B] Bihta Co operative Development Cane Marketing Union Ltd. Joint Stock Bank Ltd. vs Macmillan, ; Tai Hing Cotton Ltd. vs Liu Chong Bank, [1985] 2 All England Reports 947; Greenwood vs Martins Bank Ltd., = [1932] All England Reports 318; and New Marine Coal Co. (Bengal) Pvt. Ltd. vs Union of India, ; , referred to.


judgement:
ivil Appeal No. 544 of 1975.
From the Judgment and Order dated 20.8.
1973 of the Gujarat High Court in Special Civil Application No. 631 of 1970.
C.M. Lodha and Miss Subhashini for the Appellant.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This is an appeal by the Revenue by special leave and is directed against the judgment of the Gujarat High Court dated August 20, 1973 in a writ petition.
The High Court quashed the notice for reassessment issued under section 147(b) of the Income tax Act, 1961 (hereinaf ter referred to as 'the Act ') for the assessment year 1965 66.
Inspite of service of notice, the assessee respondent has not appeared.
The High Court has quashed the notice by accepting the assessee 's contention that the action of the Income tax Officer was barred by limitation prescribed by the Act.
There is no dispute that the notice in this case under section 147(b) of the Act was issued by registered post on March 31, 1970, and was received by the assessee on April 3, 1970.
To the facts of the case, section 147(b) of the Act applies.
The two relevant provisions are in sections 148 and 149 of the Act which provide: "148(1) Before making the assessment, reas sessment or recomputation under section 147, the Income tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section.
44 (2). . . . . . . "149(1) No notice under section 148 shall be issued, (a). . . . . . . (b) In cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant as sessment year.
(2) The provisions of sub section (1) as to the issue of notice shall be subject to the provisions of section 151." The High Court relied upon the decision of this Court in the case of Banarsi Debi & Anr.
T. 0., District IV, Cal cutta & Ors., where the validity of a notice under section 34(1) of the Incometax, Act, 1922 and the scope of section 4 of the Income tax (Amendment) Act of 1959 by which sub section (4) was introduced into section 34 were considered.
This Court indicated, keeping the provisions of section 34 in view, that there was really no distinction between "issue" and "service of notice".
Section 34, sub section (1) as far as relevant provided thus: "34(1) If (a). . . . . . . (b) . . he may in cases falling under clause (a) at any time within 8 years and in cases falling under clause (b) at any time within four years at the end of that year, serve on the assessee, . . and may proceed to assess or reassess such income . . ." Section 34, conferred jurisdiction on the Income tax Officer to reopen an assessment subject to service of notice within the prescribed period.
Therefore, service of notice within limitation was the foundation of jurisdiction.
The same view has been taken by this Court in Janni vs Indu Prasad Bhat, as also in C.I.T. vs Robert, The High Court in our opinion went wrong in relying upon the ratio of in disposing of the case in hand.
The scheme of the 1961 Act so far as notice for reassessment is concerned is quite different.
What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147, 148 and 149 in the 45 1961 Act.
A clear distinction has been made out between 'issue of notice ' and 'service of notice ' under the 1961 Act.
Section 149 prescribe the period of limitation.
It categorically prescribes that no notice under section 149 shall be issued after the prescribed limitation has lapsed.
Section 148(1) provides for service of notice as a condition precedent to making the order of assessment.
Once a notice is issued within the period of limitations, jurisdiction becomes vested in the Income tax Officer to proceed to reassess.
The mandate of section 148(1) is that reassessment shall not be made until there has been service.
The require ment of issue of notice is satisfied when a notice is actu ally issued.
In this case, admittedly, the notice was issued within the prescribed period of limitation as March 31, 1970, was the last day of that period.
Service under the new Act is not a condition precedent to conferment of jurisdic tion in the Income tax Officer to deal with the matter but it is a condition precedent to making of the order of as sessment.
The High Court in our opinion lost sight of the distinction and under a wrong basis felt bound by the judg ment in As the Income tax Officer had issued notice within limitations, the appeal is allowed and the order of the High Court is vacated.
The Income tax Officer shall now proceed to complete the assessment after complying with the requirements of law.
Since there has been no ap pearance on behalf of the respondents, we make no orders for costs.
A.P.J. Appeal allowed.

summary:
The respondent challenged the notice for reasessment issued under section 147(b) of the Income Tax Act, 1961 for the assessment year 1965 66.
The High Court quashed the notice holding that the action of the Income Tax Officer was barred by limitation prescribed by the Act.
Allowing the appeal of the Revenue, HELD: 1.
The scheme of the 1961 Act so tar as notice for reassessment is concerned is quite different.
What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147.
148 and 149 of the 1961 Act.
A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act.
Section 149 prescribes the period of limitation.
It categor ically prescribes that no notice under section 148 shall be issued after the prescribed limitation has lapsed.
Section 148(1) provides for service of notice as a condition prece dent to making the order of assessment.
Once a notice is issued within the period of limitations, jurisdiction be comes vested in the Income Tax Officer to proceed to reas sess.
The mandate of section 148(1) is that reassessment shall not be made until there has been service.
The requirement of issue of notice is satisfied when a notice is actually issued.
Banarsi Debi & Anr.
vs L T.O. District IV, Calcutta & Ors., ; Janni vs Indu Prasad Bhat, and C.I.T. vs Robert, , distinguished.
In the instant case, notice was issued within the prescribed period 43 of limitation as March 31, 1970 was the last day of that period.
Service under the new Act is not a condition prece dent to conferment of jurisdiction in the Income Tax Officer to deal with the matter but it is a condition precedent to making of the order of assessment.
The High Court lost sight of the distinction and under a wrong basis felt bound by the judgment in Banarsi Debi & Anr.
T. 0., District IV, Calcutta & Ors., ( As the Income Tax Officer had issued notice within limitation the order of the High Court is vacated.