Kisan Vikas Patras (KVPs) are negotiable instruments - Negotiable instrument is payable to order, the maker, acceptor or endorser would be discharged from liability when payment is made to the 'holder' of the instrument.

Case Name: Pradeep Kumar And Anr. v. Post Master General And Ors.

Citation: 2022 LiveLaw (SC) 139

Case No. and Date: Civil Appeal No. 8775-8776 of 2016 | 7 Feb 2022

Corum: Justices L. Nageswara Rao, Sanjiv Khanna and B.R. Gavai

Counsel for the appellant: Advocate-on-record Ms. Namita Choudhary; Advocates, Mr. Aditya Kr. Choudhary, Mr. Gurmehar Uaan Singh, Mr. Vaibhav Prasad Deo, Mr. Saurav Kumar

Counsel for the respondent: Advocate-on-record Mr. Gurmeet Singh Makker, Mr. Kedar Nath Tripathy; ASG (NP), Mr. Vikramjit Banerjee; Advocates, Mr. Nalin Kohli, Ms. Rukhmini Bobde, Mr. Rajan Kr. Chouraisa, Mr. Jitendra Mahapatra, Mr. A.K. Yadav.

Headnotes

 Banking Law - Bank's Liability for acts of employees - What is relevant is whether the crime, in the form of fraud etc., was perpetrated by the servant/employee during the course of his employment. Once this is established, the employer would be liable for the employee's wrongful act, even if they amount to a crime. Whether the fraud is committed during the course of employment would be a question of fact that needs to be determined in the facts and circumstances of the case. (Para 38)

Negotiable Instruments Act, 1881 - Section 3- 'Banker' includes any person acting as a banker and any post office savings bank. In terms of this section, a post office savings bank is a banker under the NI Act. (Para 11)

Negotiable Instruments Act, 1881 - Sections 131 and 131A - The standard of care expected from a collecting banker does not require him to subject the cheque to a minute and microscopic examination, yet disregarding circumstances about the cheque, which on the face of it gives rise to suspicion, may amount to negligence on the part of the collecting banker. Further, the question of good faith and negligence is to be judged from the standpoint of the true owner towards whom the banker owes no contractual liability but statutory duty by these provisions - Allegations of negligence against the paying banker could provide no defence for the collecting banker who has not collected the amount in good faith and without negligence. (Para 20) [Kerala State Co-operative Marketing Federation v. State Bank of India (2004) 2 SCC 425 ]

Negotiable Instruments Act, 1881 - Section 13- Kisan Vikas Patra Rules, 1988 - Kisan Vikas Patras (KVPs) are negotiable instruments in terms of Section 13 of the NI Act - It cannot be said that the KVPs are simple bearer instruments payable to anyone who presents the same for encashment and discharge. (Para 12 , Para 29)

Negotiable Instruments Act, 1881 - Sections 15 and 16 - 'Indorsement', 'indorsee', 'indorser' and 'indorsement in blank' and 'in full' - Indorsement for the purpose of negotiation is made by the maker or holder of the negotiable instrument when he signs on the back or face of thereof, on a slip of paper annexed thereto or on a stamp paper for the purpose of negotiation. The person signing is called the indorser. If the instrument is signed by the indorser in his name only, it is an indorsement in blank. If the indorser also specifies the person to whom payment is to be made, the indorsement is said to be 'in full', and the person so specified is called the indorsee. (Para 12)

Negotiable Instruments Act, 1881 - Section 13- Different principles apply for discharge from liability when the negotiable instrument is payable to bearer or has been indorsed in blank, in which case payment must be made in terms of Section 10, whereas when the negotiable instrument is payable to order, the maker, acceptor or endorser would be discharged from liability when payment is made to the 'holder' of the instrument. (Para 14)

Negotiable Instruments Act, 1881 - Sections 8 and 78- 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)

Negotiable Instruments Act, 1881 - Section 8 - A holder means a person (i) entitled to possession of a promissory note, bill of exchange or a cheque, and (ii) entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in his name- The requirements of Section 8 are two-fold, and both requirements have to be satisfied. (Para 15)

Negotiable Instruments Act, 1881 - Section 10- Definition of '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. (Para 17)

Negotiable Instruments Act, 1881 - Section 10- General Clauses Act, 1897- Section 3(22) - Section 3(22) of the General Clauses Act 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. (Para 18)

Negotiable Instruments Act, 1881 - Section 10- Definition of 'payment in due course' - 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.9 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)

Banking Law - Bank's Liability for acts of employees - 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. Post office / 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. (Para 37)