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Canara Bank Ltd. v. I. V. Rajagopal (1975) 1 MLJ 420

Canara Bank Ltd. v. I. V. Rajagopal (1975) 1 MLJ 420

FACTS-

  • The plaintiff, a representative of M/s. Lakshmi Mills Company Limited had a personal account with Canara Bank.
  • In the course of his duties, he issued a cheque for Rs. 294-40 from his personal account to pay the telephone bill for a telephone used by the company.
  • The bank dishonored the cheque on April 8, 1964, despite the plaintiff having sufficient funds in his account.
  • The telephone department advised the plaintiff of the dishonor on April 24, 1964.
  • Despite the plaintiff's efforts, including meeting with bank officials and requesting a representation of the cheque, the telephone was disconnected on May 6, 1964.
  • The plaintiff's employers terminated his services on June 15, 1964, citing the failure to pay the telephone bill in time as the reason.
  • The plaintiff filed a suit against the bank claiming damages for loss of earnings and mental agony due to the wrongful dishonor of the cheque.
  • The trial court held, that the conduct of the Bank throughout reflects that they were negligent in handling the transaction and hence, would find that the dishonoring of the cheque issued by the plaintiff, in the circumstances, should be viewed to be due to indifference and wilful negligence.
  • The present appeal is against the decree of the trial court.
  • The appellant's counsel argued -
    • that the termination of the plaintiff's services by M/s. Lakshmi Mills Company Limited couldn't be solely blamed on the dishonoring of the cheque and subsequent telephone disconnection, attributing it to other causes. 
    • They also contended that the awarded special damages of Rs. 10,000 and general damages of Rs. 4,000 for mental agony and loss of reputation were excessive and exaggerated.

ISSUES-

  • The main issue is, Whether the damages claimed were the natural and reasonable consequence of the bank's dishonor of the cheque.

RULE-

  • Negligence of a bank in dishonoring a customer's cheque, resulting in damages, renders the bank liable for compensation.
  • The word “compensate” used in section 31 has special signification in the context in which it is used. The well-understood proposition in law is that damages are awardable if a sufficient nexus is established between the wrongful act and the resultant loss to the injured.

HELD-

  • The bank's negligence in handling the transaction, failure to take prompt action, and casual response aggravated the situation.
  • The dismissal of the plaintiff from employment was a direct result of the dishonor of the cheque and subsequent telephone disconnection.
  • New Central Hall v. United Commercial Bank [AIR 1959 Mad. 153],  The court noted that the fact that the dishonoring of a cheque took place due to a mistake of the bank is not an excuse, and the offer of the bank to apologize to the payees of the dishonored cheques does not affect the bank's liability to pay damages for their wrongful act.
  • Mohammed Hussain v. Chartered Bank [AIR 1965 Mad. 266],The court approved the distinction made between traders and non-traders in the matter of recovery of damages from a negligent banker. Traders can recover substantial damages for injury to their credit without proof of actual damage, whereas non-traders need to provide evidence of specific damage.
  • Davis v. Carret [130 ER 1456, 1459, 1030]: The court highlighted the principle that a wrongdoer is responsible for the loss caused by their wrongful act, regardless of whether the loss was immediate or occurred as a result of subsequent events.
  • The bank is held liable for damages due to its negligence in dishonoring the plaintiff's cheque.
  • The plaintiff is entitled to compensation for loss of earnings and mental agony caused by the bank's actions.
  • The damages awarded by the trial court are reasonable and justified based on the circumstances of the case.

COMMENTARIES RATIO/NOTE-

 

  • SECTION 31—NOTES (under Appendix 2 The Negotiable Instruments Act, 1881)

 

 

Regret Letter to payees does not take away liability for damages.—The Madras High Court in New Central Hall v. United Commercial, Bank Ltd., (1959) 29 Comp Cas 78 (Mad) (DB) : AIR 1959 Mad 153 (DB) : (1959) 1 MLJ 28 : ILR (1959) Mad 198, held that where a banker having sufficient funds of a customer in his hands fails, even by mistake to honour cheques issued by the customer, the customer has a right to claim damages. It has also been observed that offer of the bank to write letters to the various payees of the dishonoured cheques explaining the mistake would not take away the liability of the bank to pay substantial damages. It is something like offering to wipe out the spittle from a man with a bucket of water after he has been unjustly spat upon. In the case of a non-trader customer only nominal damages will be awarded where there is no proof of special loss or damages as a result of wrongful dishonour, but a trader customer is entitled to substantial damages even in the absence of proof of special loss or damages. The Indian law on the subject is not at all different from the English law on the point.