Judgment :- 1. The first of these appeals is by the first defendant, the drawee bank of a draft for Rs. 4000/- taken by the plaintiff at its Alleppey branch payable to Pw. 2, the proprietor of Hurry Das Auddy, at the New Market branch of the bank at Calcutta. The draft was sent by the plaintiff to a friend of his, pw.1; but it was intercepted in transit by the third defendant, a customer of the second defendant bank. And the Shambazar branch of the second defendant collected the draft from the first defendant. The amount was also withdrawn by the third defendant. The plaintiff filed the suit for recovery of the amount against defendants 1 to 3; and all the courts including a judge of this Court in second appeal held that defendants 1 and 3 were liable. The appeal is against that decision The third defendant did not contest. 2. The second of the appeals is by the second defendant, the collecting bank who collected the draft from the first defendant on behalf of its customer, the third defendant. The trial court dismissed the suit against the second defendant; but the lower appellate court and the second appellate judge held that the second defendant was also liable. And A. S. A No. 12 of 1969 is against that decision. 3. The decision of the second appellate judge is reported as Central Bank of India Ltd., Bombay-I v. V. Gopinathan Nair (AIR. 1970 Ker 74). 4.We shall first consider A S. A. No. 11 of 1969. Since all the three courts including the learned second appellate judge have held that the first defendant is also liable, we are very careful and circumspect in dealing with this case. But, after hearing arguments at some length, we feel that the concurrent decision including that of the second appellate judge requires variation. 5. Since all the three courts including the learned second appellate judge have held that the first defendant is also liable, we are very careful and circumspect in dealing with this case. But, after hearing arguments at some length, we feel that the concurrent decision including that of the second appellate judge requires variation. 5. The first defendant claims protection under S.85A of the Negotiable Instruments Act, which reads: "Where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course." The learned second appellate judge has observed that the lower courts have found that the first defendant was negligent, and has also observed that negligence is a question of fact: the reasoning of the learned judge appears to be that, since that finding was on a question of fact, in second appeal, the learned judge should not interfere with that conclusion. We wish to point out a distinction, which, we are sure, is real, between two aspects. What is negligence is not a question of fact but is a question of law; and whether such negligence is established in a particular case is a question of fact depending upon the facts and circumstances of that case. We feel that this distinction has not properly been kept in view. The learned second appellate judge has considered two English decisions: and in one of them itself this distinction is indicated, because it is pointed out that negligence is a question of fact to be decided by the jury, but the jury should be properly charged, which means that it is the duty of the judge to tell the jury as to what is meant by negligence (vide the Metropolitan Railway Company v. Jackson: (47 (1878) Q. (Q.B.) 303). If that is done, then whether such negligence is established in the circumstances of a case is a question to be decided by the jury, a question of fact. 6. The facts of the case, as we have already indicated, are simple and are not disputed. The third defendant, a customer of the second defendant, forged the signature of the payee and then endorsed the draft (Ex. 6. The facts of the case, as we have already indicated, are simple and are not disputed. The third defendant, a customer of the second defendant, forged the signature of the payee and then endorsed the draft (Ex. P1) in favour of his own bank for collection and the second defendant collected the amount from the first defendant. And the third defendant withdrew the amount too. As already pointed out. S.85A lays down that the drawee bank of the draft is discharged by payment in due course. S.10 of the Negotiable Instruments Act defines "payment in due course" to mean "payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned." Therefore, a payment, to be a payment in due course, must have been made in good faith and without negligence to the person in possession of the draft in accordance with the apparent tenor of the instrument under circumstances which do not afford a reasonable ground for thinking that the person in possession was not entitled to receive payment. With this in view, if the facts of the case are scrutinised, what appears is this. The second defendant, the collecting bank, produced the draft for payment before the first defendant; and the first defendant, the drawee bank, paid the amount without making any enquiry or scrutiny regarding the genuineness of the previous endorsement, the endorsement by the payee. In such a case, where a draft is produced for collection by a bank on behalf of one of its customers and not by a person in possession thereof at the counter, does the law impose the same duty on the drawee bank to scrutinise the previous endorsements? In our opinion, there must be a difference between a draft being paid at the counter to a person in possession thereof and a draft being paid to another bank on behalf of one of its customers. 7. In our opinion, there must be a difference between a draft being paid at the counter to a person in possession thereof and a draft being paid to another bank on behalf of one of its customers. 7. Now, the second appellate judge has held that the first defendant was negligent on two grounds; (1) the payee of the draft, Hurry Dass Auddy, was a customer of the first defendant, and if only the first defendant scrutinised and verified the payee's signature, the bank would have found out that the signature was not genuine; and (2) the endorsement by Hurry Dass Auddy contained a portion in rubber seal, 'Esmitter and Company', which was the endorsee itself under the endorsement, viz., the third defendant, which should have aroused suspicion in any careful banker. The learned judge has reasoned that Hurry Dass Auddy, the payee, was a customer of the first defendant and, in that capacity, the first defendant must have been conversant with his signature, and that the first defendant also knew the proprietor of Hurry Dass Auddy, pw. 2. The reasoning continues that, in these circumstances, the first defendant should not have paid the money without satisfying itself about the genuineness of the endorsement by the payee in favour of the third defendant. 8. We shall point out here other hypothetical cases which will throw more light on the matter. In all cases like this, the payee need not be a customer of the drawee bank: suppose, in this case, Hurry Dass Auddy was not a customer of the first defendant: would the duty of the first defendant have been different? On principle, we feel that it should not. Again, if there were more endorsements than one and if one of the endorsers was a customer of the drawee bank, should the drawee bank scrutinise all the endorsements and find out whether any one of them was by one of its customers? And if it was found that one of the endorsements was by a customer, should the bank investigate further and find out whether that endorsement was genuine? Here also, we feel that, on principle, the answer should be in the negative. And if it was found that one of the endorsements was by a customer, should the bank investigate further and find out whether that endorsement was genuine? Here also, we feel that, on principle, the answer should be in the negative. What we wish to emphasise is that, when a draft is being presented for collection before the drawee bank by the collecting bank on behalf of one of its customers, the drawee bank can rely on and rest assured that the collecting bank would have discharged its duty of scrutinising and satisfying itself about the title to the draft of its own customer. In other words, in such a case, the law does not demand the same care and caution that is expected of a drawee bank in a case where the draft is produced for encashment at the counter by an unknown person. Otherwise, crossing of a draft and paying it through a collecting bank become pointless. 9. In this view of the matter, we feel that the decision of the lower courts including the second appellate judge regarding the liability of the first defendant is erroneous. We, therefore, allow this appeal (A.S.A. No. 11 of 1969) and set aside the decree against the first defendant: against the first defendant, we dismiss the suit. However, in the circumstances, we do not pass any order regarding costs. 10. Now about the other appeal. In the second case, the second defendant tries to take protection under S.131A of the Negotiable Instruments Act. The said section merely applies the provision of Chapter XIV of the Act to drafts as well, so that the relevant provision is S.131 relating to cheques. S.131 reads: "A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, incase the title to the cheque proves defective incur any liability to the true owner of the cheque by reason only of having received such payment. Explanation:- A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that be credits his customer's account with the amount of the cheque before receiving payment thereof." In considering this question, the learned second appellate judge has referred to a few decisions of Indian Courts and of English Courts as well. Explanation:- A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that be credits his customer's account with the amount of the cheque before receiving payment thereof." In considering this question, the learned second appellate judge has referred to a few decisions of Indian Courts and of English Courts as well. The three aspects or circumstances to be considered in deciding the question whether a collecting bank has discharged its responsibility to come within S.131 are: (1) the opening of the account by its customer - whether that was allowed after proper enquiry; (2) the operating of the account by him - whether there was anything peculiar or out of the ordinary in operating the account to have aroused the suspicion of a careful banker; and (3) the endorsement leading to the collection of the draft - whether there is anything suspicious in it. 11. The learned second appellate judge has considered, as already stated, two or three English decisions, a Calcutta decision and two Bombay decisions. The Calcutta decision is Brahma Sham Shere Jung Bhahadur v. Charted Bank of India, Australia and China (AIR. 1956 Cal. 399) by Bose J.; and the two Bombay decision are Bapulal Premchand v. Nath Bank Ltd. (AIR. 1946 Bom. 482) by Chagla J. and Maturi Sanyasilingam v. The Exchange Bank of India and Africa Ltd. (AIR. 1948 Bom. 1) by Coyajee J. Bose J. has held in the Calcutta case that the protection under S.131 is afforded only if the banker has received payment in good faith and without negligence; that whether a collecting banker has or has not been negligent depends upon factors such as the customer, the account and the surrounding circumstances; and that the mere fact that the customer had no title to the cheque does not render the banker liable to the true owner of the cheque. 12. Chagla J. has observed in the first of the Bombay decisions that, in order to escape the liability which the general law imposes upon a person or party who converts the goods belonging to the true owner thereof, the banker must discharge the burden of establishing that he received payment on behalf of the customer of a cheque not belonging to the customer but to someone else in good faith and without negligence. And the learned judge has explained that the expression "without negligence" means "without want of reasonable care in reference to the interests of the true owner, the principal whose authority the customer purports to have". (This Chagla J. has taken from an English decision.) Chagla J. has gone on to lay down that negligence is essentially a question of fact and it must depend upon the circumstances of each case whether negligence has been proved or not. The learned judge has explained further that the test of negligence is whether the transaction of paying in any given cheque coupled with the circumstances antecedent and present was so out of the ordinary course that it ought to have aroused doubts in the banker's mind and caused him to make enquiries. The question naturally arises whether the negligence or the failure to make enquiries about the customer at the time of opening the account would reflect on the collection of the cheque subsequently, and if it reflects, how far. This question has been discussed by Chagla J, in the light of relevant English decisions, which we do not propose to consider ourselves elaborately; and the learned judge has observed; "In my opinion, there is no absolute and unqualified obligation on a bank to make inquiries about a proposed customer. I agree that modern banking practice requires that a customer should be properly introduced or, in other words, that the bank should act on the reference of some one whom it could trust. Therefore, perhaps in mast cases it would be wiser and more prudent for a bank not to accept a customer without some reference. But I am not prepared to go so far as to suggest that after a bank has been given a proper reference with regard to a proposed customer and although there are no suspicious circumstances attendant upon the opening of the account, it is still incumbent upon the bank to make further inquiries with regard to the customer." 13. But I am not prepared to go so far as to suggest that after a bank has been given a proper reference with regard to a proposed customer and although there are no suspicious circumstances attendant upon the opening of the account, it is still incumbent upon the bank to make further inquiries with regard to the customer." 13. In the other Bombay case, Coyajee J. has considered the earlier decision by Chagla J. also and has observed that, where the account of a customer was opened without obtaining a reference and without any inquiry and where the manner in which the account was operated was peculiar and where the name as endorsed on the demand draft collected by the bank did not tally with the name of the customer as given in the application form and specimen signature, it must be held that the bank failed to prove that it was not guilty of negligence in collecting the amount of the draft. The learned judge has observed further, as Chagla J. has done, that the test as to negligence under S.131 is whether the paying in of any given cheque, coupled with the circumstances antecedent and present, was so much out of the ordinary course that it ought to have aroused doubt in the bankers's mind and caused him to make inquiries. 14. These three decisions have been noted by the second appellate Judge. But there is another decision of the Madras High Court, which does not appear to have been brought to the notice of the learned judge; and that is Bharat Bank Ltd. v. Kishinchand Chitllaram (AIR. 1955 Mad. 14. These three decisions have been noted by the second appellate Judge. But there is another decision of the Madras High Court, which does not appear to have been brought to the notice of the learned judge; and that is Bharat Bank Ltd. v. Kishinchand Chitllaram (AIR. 1955 Mad. 402) by Rajamannar C. J. and Venkatarama Aiyar J. The latter wrote the judgment; and the learned judge, after considering some English decisions as well, has summarised the position in law thus: "When in an action in conversion a defence is raised under S.131, the primary question for determination is whether in the matter of realisation of the cheque the collecting bank had acted without negligence - negligence not merely at the stage of encashment but at the prior stages from the receipt of the cheque in question-The question whether the bank had acted with negligence in the opening of the account will, however, be relevant under S.131 to this extent that if the opening of the account and the deposit of the cheque are really part of one scheme, as where the account itself is opened with the cheque in question or where it is put into the account so shortly after the opening of the account as to lead to the inference that it is part of it, the negligence in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque." Venkatarama Aiyar J. has observed further that it might happen that, even when an account was opened without a proper enquiry, it might continue to be operated satisfactorily for some time, but long afterwards a cheque might be put into the account which might turn out to be forged; and that in such a case it could not be laid down as an "inexorable rule" that negligence in the opening of the account must be treated as negligence in the receipt of the amount of the cheque. 15. At this stage, we shall refer to the argument of the counsel of the plaintiff and also to the English decision cited by him in Lloyds Bank Ltd. v. E.B. Savory and Company (1933 A. C. 201) (referred to by the second appellate judge too.) The counsel has drawn our attention, in particular, to the judgment of Lord Wright. 15. At this stage, we shall refer to the argument of the counsel of the plaintiff and also to the English decision cited by him in Lloyds Bank Ltd. v. E.B. Savory and Company (1933 A. C. 201) (referred to by the second appellate judge too.) The counsel has drawn our attention, in particular, to the judgment of Lord Wright. In his judgment, Lord Wright has observed: "There may thus be relevant negligence in connection with the opening of the customer's account by the banker, it is now recognised to be the usual practice of bankers not to open an account for a customer without obtaining a reference and without inquiry as to the customer's standing; a failure to do so at the opening of the account might well prevent the banker from establishing his defence under S.82 if a cheque were converted subsequently in the history of the account:" (Underlining is ours. S.82 is similar to S.131 of the Negotiable Instruments Act. In this connection. Lord Wright has also referred to the observation of Lord Dunedin in Commissioners of Taxation v. English. Scottish and American Bank Ltd. (1920 A. C. 683 AIR. 1920 P. C. 88) that the question of absence of negligence must be considered in the light of all the circumstances antecedent and present.) From this the counsel has sought to argue that, if there was negligence at the time of opening the account, that negligence mast prevail throughout the life of the account however long it was; and that the said negligence must be taken as negligence under S.131 in receiving payment. It is one thing to say that the opening of an account coupled with the peculiarity of operating the account leads the bank to suspicion and, on the basis of that suspicion, the bank discontinues or closes the account of a customer; it is a different thing to say that such failure to make enquiries at the time of opening the account will reflect and reflect to a great extent on the cashing of a cheque or draft for that customer during the entire life of the account however long the account might have continued. Similarly, the failure of a bank to note the peculiarity of a customer in operating his account may be a circumstance relevant for considering whether the bank has been negligent: but it must be remembered that the negligence contemplated by S.131 is negligence in "receiving payment for a customer" and not negligence in allowing him to open an account or allowing him to operate the same in a peculiar or suspicious manner. We are. therefore, of the same opinion as the one expressed by Venkatarama Aiyar, J. in the Madras Division Bench ruling cited above regarding the opening of the account, namely, that, if there is a connection between the cashing of the cheque and the opening of the account, to that extent alone the defect in the opening of the account should reflect on the cashing of the cheque not otherwise. We however make it clear that the opening of the account and the peculiarity of operating the same may also reflect on the cashing of the cheque, but how far should depend upon the circumstances of each case. And we also repeat the observation of Lord Dunedin in the case noted above that "if it was laid down that no cheque should be collected without a thorough enquiry as to the history of the cheque it would render banking business as ordinarily carried on impossible; customers would often be left for long periods without available money". 16. The learned second appellate judge has considered the evidence in the case in some detail and has held that the second defendant was negligent. We are not in entire agreement with the reasoning and the circumstances pointed out as grounds of negligence, because, in our opinion, the learned judge appears to have attached undue importance to the opening of the account and the peculiarity in operating the same, though they also should be taken into consideration. But we are in agreement with the conclusion of the learned judge that the second defendant is liable. And we shall now give our reasons for this conclusion. 17. S. 131 lays down that a banker will not be liable for conversion, who, in good faith and without negligence, received payment for a customer, if, ultimately, the title to the cheque proves defective. And we shall now give our reasons for this conclusion. 17. S. 131 lays down that a banker will not be liable for conversion, who, in good faith and without negligence, received payment for a customer, if, ultimately, the title to the cheque proves defective. From this one thing is clear, i. e., that the collecting bank should see to the title to the cheque of its customer before it collects the amount. The Explanation to the section is also revealing, for it makes the bank still liable even if it credits the customer's account first and then only receives payment. In other words, the collecting bank must see that there was no defect in the title of its customer to the cheque before collecting the same. 18. The draft in the case before us was presented before the first defendant for collection: and under what circumstances the draft came into the possession of the second defendant is spoken to by dw. 2, the agent of the second defendant. And his evidence is the only evidence on the point: in other words, the officer who actually received the draft has not been examined. dw. 2 was asked, 'when did you handle this draft?" (Q. No. 47); & dw. 2 answered, "The clearing department sent to me, with all other cheques, this draft for my signature. At that time, I came to handle it." He was again asked, "Kindly look at the draft and show how it was handled by you, in what respect?" (Q. No. 48); and he answered, "I have signed within the rubber stamp (Ex. A) as agent of defendant No. 2". Another question put to him was, "Do you find the endorsement of the first payee on the said draft was correct letter to letter to the name of the payee as spelt on the face of the instrument?" (Q. No. 175); and his answer was, "it seems so. (Then volunteers) This is not our business. It is the business of the payee bank." This clearly shows that the collecting bank never made any attempt or effort to find out whether the endorsement in favour of its own customer, viz., Hurry Dass Auddy, was genuine-whether its own customer had title to the draft. According to dw. 2, that was not the business of the collecting bank. This is wrong: dw. According to dw. 2, that was not the business of the collecting bank. This is wrong: dw. 2, is wrong, because, as we have already pointed out, the duty of the collecting bank is to see whether its customer had proper title to the draft: and that could be decided only if the endorsement in favour of its customer by the payee, Hurry Dass Auddy, was scrutinised and found to be without defect. In the absence of such scrutiny, the second defendant could not claim that the bank was not negligent in collecting the amount of the draft: and the negligence of the bank at the time of opening the account and its negligence in allowing the third defendant to operate the account improperly were only secondary: of course, they also add to the negligence of the second defendant. In this view, we hold that the second defendant is liable, mainly for reasons different from the reasons given by the second appellate judge. And we dismiss A.S.A. No. 12 of 1969 with costs.