Pradeep Kumar and Another vs Post Master General and Others

HELD: 1.1 In the impugned judgment, the NCDRC, while accepting that some negligence could be attributed to the respondents in making the payment, dismissed the complaint against the respondents holding that they had acted in accordance with rules 14 and 15 of the 1988 rules. Rule 19, requiring payment by cheque when discharge value is more than Rs. 20,000/–, came into force and is effective from 28-29th August 2001, whereas in the present case, the KVPs were encashed at an earlier point of time. Further, the appellants had not been truthful as it was difficult to fathom as to why they had signed and acknowledged payment on the backside of the KVPs and thereafter the KVPs were given to an unknown agent. The appellants, having done so, acted with open eyes and at their own peril and risk. [Para 9][592-E-F]

1.2 KVPs issued by the post office are a promissory instrument as defined by Section 4 of the Negotiable Instruments Act. Section 13 of the NI Act states that a negotiable instrument may be payable either to order or to bearer. Sections 15 and 16 of the NI Act define ‘indorsement’, ‘indorsee’, ‘indorser’ and ‘indorsement in blank’ and ‘in full’. [Para 12][593-C-D; 594-B]

1.3 On a harmonious reading of Sections 8 and 78, it follows that payment made to a person in possession of the instrument, but not entitled to receive or recover the amount due thereon in his name, is not a valid discharge. [Para 15][595-G]

1.4 As per Section 9, a ‘holder in due course’ is a person who for consideration has become a possessor of the instrument if payable to a bearer or if payable to the order to the person mentioned, i.e. the payee, or becomes the indorsee thereof. Holder in due course means the original holder or a transferee in good faith, who has acquired possession of the negotiable instrument for consideration, without having sufficient cause to believe that there was any defect in the title of the person from whom he has derived the title. Negotiation in case of transfer should be before the amount mentioned in the negotiable instrument becomes payable. Clause(g) to Section 118 states that unless contrary is proved the ‘holder’ of a negotiable instrument is presumed to be a ‘holder in due course’. But the proviso qualifies the presumption, where the instrument has been obtained from its lawful owner or a person in lawful custody thereof by means of an offence or fraud or has been obtained from the maker or acceptor thereof by means of an offence or fraud or by an unlawful consideration. In such cases the burden of proving that the ‘holder’ is a ‘holder in due course’ lies on the person claiming to be so. [Para 16][596-C-F]

1.5 When payment is made in accordance with the apparent tenor of the instrument in good faith and without negligence to a person in possession thereof, it is payment in due course. The requirement in Section 10 that the payment should be in both good faith and without negligence is cumulative. Thus, mere good faith is not sufficient. Consequently, Section 3(22) of the General Clauses Act, 1897, which defines ‘good faith’ as an act done honestly, whether done negligently or not, is not sufficient to hold that the payment made was ‘payment in due course’ under the NI Act. Ascertainment of whether the act of payment is in good faith and without negligence is by examination of the circumstances in which payment is made. In other words, antecedent and present circumstances should not afford a reasonable ground for believing that the person to whom payment is made is not entitled to receive payment of the amount mentioned. While it would not be advisable or feasible to strait-jacket the circumstances, albeit value of the instrument, other facts that would raise doubts about the reliability and identity of the person entitled to receive payment and genuineness of the instrument in the payer’s mind are relevant considerations.[Para 17][597-B-E]

1.6 Presumption under clause (g) to Section 118 would not apply as the service provider is not an indorsee and the instrument was in the name of the appellants. Further, the service provider was not a ‘holder in due course’, as obtained possession of the instrument by means of an offence or fraud. However, Section 78 uses the expression ‘holder’ and not ‘holder in due course’. The service provider was not the ‘holder’ as defined under Section 8 of the NI Act. She was not entitled to sue the maker, acceptor or indorser of the instrument of the amount due thereon in her name. Further as elucidated below are primarily predicating the decision on the application of clause(c) to Section

82 read with Section 10of the NI Act as the KYPs were bearer instruments. The respondent can claim discharge under Section 82(c) of the NI Act by showing that they had complied with the requirements of Section 10, that is, they had acted in good faith and without negligence [Para 22][602-A-D]

1.7 It appears to be the stand of the respondents, though not specifically stated and argued, that the KVPs were bearer instruments and hence encashable by the bearer of the instrument. This stand of the respondents, is partially correct as KVPs are encashable in terms of the 1988 Rules. KVPs are bearer instruments with conditions to be satisfied before payment is made to the ‘physical holder’ and presenter of the instrument for encashment, an aspect we would elaborate. The respondents are not under an obligation to honour KVPs unless the conditions specified are satisfied. However, once it is accepted that the KVPs are bearer instruments, the maker, i.e. the respondents, would be discharged when they make payment in terms of clause(c) to Section 82 of the NI Act, that is, ‘payment made in due course’ as defined by Section 10 of the Act. For clarity, if the KVPs are held to be payable to order, then the maker, that is, the respondents, would be discharged from liability in terms of Section 78 of the NI Act when they make payment to the ‘holder’, which as per Section 8 of the Act means a person who is entitled to possession of the instrument and is also entitled to sue to recover the amount from the maker of the instrument. The respondents as the maker of KVPs have not discharged the liability in terms of Section 78 as payment to R was not made to the ‘holder’ of the KVPs. R not entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in her name. The KVPs were not indorsed in favour of R. [Para 28][604-F-G; 605-A-D]

1.8 The Rule 11 of 1988 Rules states that a certificate shall be encashable at the post office which issued it. However, a KVP can also be encashed at any other post office if the Officer–in– charge of that post office is satisfied, on production of the identity slip or on verification from the post office of issue, that the person presenting the certificate f or encashment is entitled to encashment. Thus, it cannot be said that the KVPs are simple bearer instruments payable to anyone who presents the same for encashment and discharge. [Para 29][606-B-C]

1.9 There is nothing on record to suggest that the Officer– incharge of the post office was satisfied on the production of the identity slip or on verification from the post office of issue that the person presenting the certificate for encashment is entitled thereto. Thus, there was violation of Rules 9 and 11 of the 1988 Rules. [Para 33][612-C]

1.10 The NCDRC had been rather harsh in holding that the appellants were silent and, therefore, guilty of negligence. The finding overlooks that no one would like to avail services of a stranger or an agent if the work, that is, transfer of KVP certificates, could be otherwise handled and done with ease. Further, no one would like to lose money to a stranger. Necessarily, the appellants had remained in touch with R but were given the impression that the exercise is complex and would take time. Further they had belief that the post office would take care of their interest, act in good faith and would not be negligent. [Para 35][615-G-H; 616-A]

1.11 The payment was made in violation of the statutory mandate of Section 10 of the NI Act and, therefore, there is no valid discharge under clause (c) to Section 82 of the NI Act. Further, R not being a ‘holder’, payment to her is not a valid discharge under Section 78 read with Section 8 of the NI Act. The respondents would have avoided the liability and claimed valid discharge if they had accepted the KVPs with the identity slip or if they had made payment by cross cheque, in which case, they would have satisfied the condition that they had made payment in good faith and there was no negligence, a requirement of clause

(c) to Section 82 read with Section 10 of the NI Act.[Para 36][616B-C]

1.12 The respondent no. 4 is not a third person but an officer and an employee of the Post Office. Post Office, as an abstract entity, functions through its employees. Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others. Such acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties.The fraud was committed by M.K. Singh, respondent No. 4, in and during the course of his employment. This is clear from the findings recorded in the departmental proceedings. [Para 37, 39][616-D-G; 617-C]

1.13 The respondents were faced with a difficult position as they wanted to act against M.K. Singh, and at the same time also protect themselves against any liability and claims of the appellants. Faced with this dilemma, the respondents acted halfheartedly and took action in the proceedings initiated against M.K. Singh, while they wanted to protect their commercial interests and defend themselves against claims made by the appellants. The findings recorded in the inquiry report, which became the basis for the order of dismissal, which punishment was subsequently converted to compulsory retirement, would, in our opinion, equally apply to the encashment of all the KVPs. No valid distinction can be drawn between the case that became the subject matter of departmental enquiry and other cases of encashment of the KVPs. Hence, the post office/bank can be held liable for the fraud or wrongs committed by its employees. Accordingly, the respondents will be held liable for the acts of M.K. Singh during the course of his employment. [Para 40][618B-E]

1.14 The impugned order passed by the NCDRC dismissing the consumer case filed by the appellants is set aside. The order and directions against R remain undisturbed. The consumer case is allowed by issuing the following directions that the respondent Nos. 1 to 4 would be jointly and severally liable to pay the maturity value of the KVPs as on the date the KVPs were presented to the post office for encashment, along with 7% simple interest per annum from the said date till the date of payment; that the appellants would be entitled to a compensation of Rs.1,00,000/and costs of Rs. 10,000/-; and that the amounts as directed would be paid within the stipulated period from the date of pronouncement of this judgment. [Para 41][618-E-H]

Indian Overseas Bank v. Industrial Chain Concern (1990) 1 SCC 484 : [1989] 2 Suppl. SCR 27; Kerala State Co–operative Marketing Federation v. State Bank of India and Others (2004) 2 SCC 425 : [2004] 2 SCR 1; PonnappaMoothan Sons, Palghat v. Catholic Syrian Bank Limited and Others (1991) 1 SCC 113 : [1990] 1 Suppl. SCR 542; Canara Bank v. Canara Sales

Corporation and Others (1987) 2 SCC 666 : [1987] 2 SCR 1138; Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. and Others (1985) 2 All ER 947; State Bank of India (Successor to the Imperial Bank of India) v. Smt. Shyama Devi (1978) 3 SCC 399 : [1978] 3 SCR 1009 – referred to.