A.M. A NJARWALLA & COMPANY Versus NOMANBHAI

1. The plaintiffs had two current accounts bearing No.2959 in the name of A.M. ANJARWALLA & C0. and account No.2963 in the name of Mls. QUTBI TRADERS with Cloth Market Branch, Karachi of the defendant No.3. The defendant No.2 was the Manager of the defendant No.3 in the said Branch. The plaintiffs were granted overdraft facilities in the said two current accounts. As security the plaintiffs had deposited with the said branch of the defendant No.3 three fixed deposit receipts of Rs.25,000 each bearing No.168373, 168374 and 168375. Another three Fixed Deposit Receipts No.168370, 168371 and 168372 of Rs.25,000 each were deposited as security for the overdraft facility granted to the plaintiffs account under the name of Qutbi Traders. The plaintiffs in full trust and faith in defendant No. 2 as the Manager of the Cloth Market Branch of defendant No.3 signed and delivered to the defendant No.2 letter of pledge in blank for the purposes of securing overdraft facilities. The defendant No.2 misused his authority and in collusion with the defendant No.l. on 29‑10‑1970 adjusted three Fixed Deposit Receipts towards over‑draft facilities granted to the defendant No.l without the knowledge and consent of the plaintiffs. There is no dispute about the adjustment of F.D.Rs. in the account titled Qutbi Traders. On 17th June, 1971 when the plaintiffs approached the Cloth Market Branch for encashment and adjustment of their aforesaid Fixed Deposit Receipts they were informed that the said receipts have been utilised for extending overdraft facilities to the defendant No.l and the amount of Rs.83,882.25 and interest of Rs.1617.75 have been adjusted in his account. The plaintiffs approached the defendant No.2 for recovery .of Rs.85,400 who while admitting that he has mis‑used his official position, by way of collateral security executed and delivered to the plaintiffs promissory note dated 19‑6‑1971 for Rs.60,000. He also executed a letter of confirmation. In these circumstances, the plaintiffs have claimed Rs.85,400 as principal sum and Rs.19,215 as interest from 17‑6‑71 to 17‑12‑73. The total claim comes to Rs.1,04,615.

2. The defendant No .l filed his written statement which he admitted that he is the sole proprietor of Moazzam Impex but denied that he was holding a bank account No.2960 at Cloth Market Branch of Habib Bank Ltd. The defendant No.l averred that he has account with Habib Bank Limited, Foreign Exchange Branch in the name of Moazzam Impex and that it has never been transferred to Cloth Market Branch. It was further averred that the defendant No.l never applied for overdraft facilities as alleged, nor he has any knowledge of any transaction with regard to overdraft and its adjustment by the defendants No.2 and 3. The entire claim of the plaintiffs has been denied.

3. The defendant No.2 filed his written statement admitting that at the relevant time he was the Manager of the Cloth Market Branch. He further stated that the Fixed Deposit Receipts deposited with him were not deposited by the plaintiffs. The defendant No.l is related to defendant No.2 and was assisting him with regard to his business. The defendant No.l had executed a letter of authority in his favour for operating the bank account in the name of Moazzam Impex. It was admitted that two accounts in the name of Anjarwalla & Co. and Qutbi Traders were maintained, but it was denied that the account of Qutbi Traders was maintained or operated by the plaintiffs or that the plaintiffs had to do anything with it. It has been however, admitted that the overdrafts were given in these two accounts. It has been stated that the Fixed Deposit Receipts were lodged with the Bank by the persons in whose names the Fixed Deposit Receipts were issued and that they had pledged to secure the overdraft account of the plaintiffs and in the account of Qutbi Traders, but no letter of pledge in blank was delivered to him. The letter of pledge was deposited with the defendant No.3 in its normal course of business. It has been denied that the defendant No.2 has misused his authority. It has been pleaded that the defendant No.l required over‑draft facilities and at his request the holders of F.D.Rs. lodged those receipts to secure the overdraft of Moazzam Impex. The defendant No.2 denied execution of promissory note. Allegations regarding fraud and collusion have been denied.

4. The defendant No.3 in their written statement alleged that the plaintiffs had their account with the Foreign Exchange Branch which was transferred to their Cloth Market Branch in or about 1‑4‑1968 and Qutbi Traders opened their account in the same Branch on 3‑6‑1968. It has been pleaded that the plaintiffs pledged the Fixed Deposit Receipts with the defendant No.3 and filled the authorised letter of lien against the said Fixed Deposit Receipts. The allegations regarding collusion and fraud has been denied and it has been stated that the Fixed Deposit Receipts were duly authorised and properly pledged and transferred under letter of arrangement. It has been pleaded that Rs.85,400 was due from Moazzam Impex which on demand by the defendant No.3 was paid in cash on 17‑6‑71 in three sums of Rs.1500, Rs.8,882.25 and Rs.75,000 and in lieu thereof, the said Fixed Deposit Receipts were delivered to the plaintiffs on 17‑6‑71. It has been alleged that the execution of promissory note by the defendant No.2 is collusive.

5. The Court had framed consent issues but with the consent of the parties they have been reframed as follows:‑

(1) Whether the defendant No.l was the Sole Proprietor of the business carried on in the name of Moazzam Impex at Old Haji Camp, Karachi and holding a current account No.2960 with the Cloth Market Branch, Karachi of Habib Bank Ltd.?

(2) Whether the defendant No.2 had an interest in the business carried on in the name of Moazzam Impex by defendant No. l?

(3) Whether the plaintiffs had deposited with the Cloth Market Branch of the Habib Bank Ltd. Karachi, three Fixed Deposit Receipts bearing Nos.168373, 168374 and 168375 of Rs.25,000 each favouring Mst. Zohra Bai Yousufali for extending overdraft facilities in the account of the plaintiffs and another 3 Fixed Deposit Receipts favouring Adamli for extending overdraft facilities in the account of M/s. Qutbi Traders? If so, what is its effect?

(4) Whether the plaintiffs signed and delivered to the Cloth Market Branch of defendant No.3 pledge letters in blank to secure the overdraft facilities?

6. (5)Whether the defendant No.2 mis‑used his position as the Manager of Cloth Market Branch of defendant No.3 in collusion with defendant No.l, lodged the Fixed Deposit Receipts for the purposes of extending overdraft facilities to Moazzam Impex without the knowledge of the plaintiff?

(6) Whether on 19‑6‑71 the Cloth Market Branch of the defendant No.3 wrongfully adjusted a sum of Rs.85, 400 towards the outstanding in the account of Moazzam Impex?

(7) Whether the defendant No.2 by way of collateral security executed and delivered to the plaintiff a promissory note of Rs.60,000, if so, what is the effect?

(8) Whether the plaintiff is entitled to recover Rs.85,400 and interest? If so from which defendant?

(9) Relief.

7. ISSUE NO.1

8. The defendant No.l has appeared and stated that he is the proprietor of the business carried in the name and style of Moazzam Impex and had a bank account in Foreign Exchange Branch of the defendant No.3. He has, however, stated he had never opened any account in the name of Moazzam Impex in the Cloth Market Branch. No evidence has been produced by any party to show that the defendant No.l had opened an account in the name of Moazzam Impex at Cloth Market Branch. The defendant No.3 has not produced any documentary evidence to establish that this account was opened, operated upon and maintained by the defendant No.l. The only explanation given during arguments is that these documents are not available because according to the learned counsel, the defendant No.2 who was the Manager of the defendant No.3 has removed or destroyed all these documents. The defendant No.3 has not shown how and in what manner the entire documents and evidence have been removed by the defendant No.2 and if he has committed such illegal acts what action has been taken by the defendant No.3 against defendant No.2. Besides the account opening Form there are various documents which are maintained in the regular course of banking business, but no such evidence has been produced by the Bank which in my opinion seems to be very amazing. Ex.8/3 is the statement, of account of current account No.2960. There are about twenty entries in it in respect of which vouchers, receipts or cheques would have been prepared. But nothing has been produced. My finding is that the defendant No.l is the Sole Proprietor of Moazzam Impex, but Account No.2960 was not opened by him at the Cloth Market Branch.

9. ISSUE NO.2:

10. No convincing evidence has been produced either by the plaintiffs or defendant No.3 to establish that the defendant No.2 had any interest in Moazzam Impex. The learned counsel for the defendant No‑3 has referred to the statement of the defendant No.l where in his examination‑in‑chief he has denied the relationship with defendant No.2 but admitted the same in cross‑examination. It is true that the defendant No.l and the defendant No.2 are relatives but mere relationship does not establish that the defendantNo.2 had any interest in the account in the name of Moazzam Impex with the Cloth Market Branch of defendant No.3. My finding is in the affirmative.

11. ISSUE NO.3:

12. D.W. 2 who is the Vice‑President and Zonal Chief of the defendant No.3 stated that three Fixed Deposit Receipts were deposited by the plaintiffs and they were adjusted towards overdraft in the name of Moazzam Impex on 17‑6‑1971. This is reflected from the statement of account Ex.8/3. He has further stated that these F.D.Rs were pledged as security for Moazzam Impex and after adjustment no claim can be made by the plaintiffs. The mysterious account of Moazzam Impex has definitely played main role in this transaction. However, the defendant No.3 has failed to establish that this account was opened by the plaintiffs. A further question which arises for consideration is that even if there was an account in the name of Moazzam Impex had the plaintiffs deposited these Fixed Deposit Receipts as security for the loan advanced to Moazzam Impex. There is no dispute that overdraft facilities were granted in the account of the plaintiffs? In the normal course of banking business the defendants No.2 and 3 would have obtained some sort of security for securing their loan. It is not the case of the defendant No.3 that overdraft facility was granted to the plaintiffs without obtaining any security. The plaintiffs admit that they had two accounts with the Cloth Market Branch of the defendant No.3, one in the name of A.M. Anjarwalla & Co. and the other in the name of Qutbi Traders. The plaintiffs were granted overdraft facilities in both the accounts. No evidences has been produced either oral or documentary to show that any other security was furnished by the plaintiffs to secure their loan. In the absence of any such cogent and convincing evidence, the only reasonable conclusion will be that the Fixed Deposit Receipts were deposited by the plaintiffs as security for the loan advanced to them in their accounts. It is very amazing that even the records of accounts of the defendant No.l have not been produced. The Bank records with regard to advance, security and pledge are not maintained on loose or scattered sheets of paper which can be destroyed with impu.1ity at the desire of their Officers. The Bank in their usual course of business maintain Registers and Books of Account from ‑which the actual accounting position, the securities, pledge and Fixed Deposit Receipts deposited can be ascertained. The excuse given by the Bank that they have lost all documents cannot be reconciled to reasoning and one is left to wonder the banking business by the defendant No.3 is carried in such a loose and unsystematic manner that one of its Officers can play havoc. In this regard reference cans be made to a letter of the defendant No.3 dated 6/8th October, 1973; in which it has been stated that the plaintiffs and their advocate were shown all the documents executed by the plaintiffs in respect of the Fixed Deposit Receipts in question who were satisfied with it. In the face of this statement the contention of the defendant No.3I that all the documents are not available or have been lost cannot be believed. The plaintiffs had served notice dated 11‑4‑1973 on the defendant No.3 calling upon them to explain under what circumstances the Fixed Deposit Receipts were adjusted against overdraft granted to Moazzam Impex. It seems that the defendant No.3 produced the documents relating to the pledge of Fixed Deposit Receipts. This happened before 28‑7‑1973 as the plaintiffs by a letter of this date referring to inspection of documents had demanded their photo copies. If the defendant No.3 had all the documents in their possession, then how is it that after the dispute arose instead of preserving the said documents the same were lost or destroyed. In the normal course, in such a situation every effort is made to keep documents in tact more so when serious charges were levelled against their Manager. During arguments suggestion was made that the defendant No.2, the Manager, having custody of the documents possibly to save himself has removed them. This contention overlooks the fact that inspection of documents was given by the Dy. Legal Advisor of defendant No.3 at their Head Office. This shows that in the wake of controversy the Head Office had called all the documents which were lying with their Deputy Legal Adviser. In these circumstances non‑production of material documents which were in possession of the Head Office of the defendant No.3 leads to the presumption that if they would have been produced they would have gone against the defendant No.3. My finding is that the Fixed Deposit Receipts were deposited by the plaintiffs to secure the overdraft facility granted to them in their account.

13. ISSUE NO.4:

14. P.W.1 has sated that in the ordinary course of business the Fixed Deposit Receipts were deposited with the defendant No.2 the Manager of the defendant No.3 and blank pledge letters duly signed were deposited as security. D.W.2 who was examined by the defendant No.3 stated that from the file it seems that three Fixed Deposit Receipts were pledged as security for the overdraft facility granted to Moazzam Impex. In his statement he has several times talked about the file, but did not produce a single document to substantiate his statement. As overdraft was granted to the plaintiffs in their accounts, the Bank would have in the ordinary course required them to secure the loan. The defendant No.3 admitted that three Fixed Deposit Receipts were deposited by the plaintiffs but have taken the stand that it was a security towards overdraft granted to Moazzam Impex. No evidence has been produced what security the Bank had obtained for granting loan to the plaintiffs. It is not the case of the defendant No.3 that overdraft was allowed to the plaintiffs without obtaining any security. In these circumstances, it can safely be concluded that the Fixed Deposit Receipts were deposited as security for the overdraft facilities granted to the plaintiffs. The defendant No.l has denied that he had applied for any overdraft loan in Cloth Market Branch or opened any account under the name of Moazzam Impex.

15. The defendant No.3 has not produced any document to prove that the account of defendant No.l was transferred from Foreign Exchange Branch to Cloth Market Branch. In written statement defendant No.3 has admitted that the plaintiffs had executed the letter of lien, but the same has not been produced. In these circumstances my finding is that the plaintiffs had deposited three Fixed Deposit Receipts Nos.168373, 168374 and 168375 as security for the overdraft facility granted to them and not to Moazzam Impex. The letter of pledge/lien signed by the plaintiffs was also deposited with the defendants Nos. 2 and 3. It has not been proved that these letters of pledge/lien were delivered in blank.

16. ISSUES NOS. 5 AND 6

17. In view of the aforestated finding it is clear that the three Fixed Deposit Receipts pledged with the defendant No.3 arid delivered to the defendant No.2 who was their Manager have been adjusted towards the overdraft account of Moazzam Impex which neither the plaintiffs claim, nor the defendant No.l owns. This mysterious account seems to have been opened in collusion with defendant No.2 and the Fixed Deposit Receipts were adjusted without the knowledge and consent of the plaintiffs. It has not been proved that the defendant No.1 and 2 had acted in collusion in adjusting the Fixed Deposit Receipts in the account of Moazzam Impex. In these circumstances, it is clear that the defendant No.2 who was the Manager of the defendant No.3 at the relevant time authorised to deal with bank's business and transaction like overdraft, has misused his official position as Manager in collusion with some one to deprive the plaintiffs of the Fixed Deposit Receipts. The adjustment of Fixed Deposit Receipts towards the overdraft account of Moazzam Impex was wrongful and illegal.

18. ISSUE N0.7;

19. The plaintiffs have pleaded that when they came to know about the adjustment they inquired from the defendant No.2 who executed a promissory note in the sum of Rs.60,400. The promissory note has been produced by the plaintiffs as Ex.8/1. A letter was also executed by the defendant No.2 in which he stated that "I confirm that Adam Ali son of Muhammad Ali Anjarwalla has paid the following amounts to M/s. Habib Bank Ltd. Cloth Market Branch, Karachi on account of overdraft outstanding against M/s. Moazzam Impex Account No.2960 as detailed below:‑

20. Cash Rs.75,000

21. Rs.08,900

22. Rs.01,500

23. Rs.85,400

24. Less cash already refunded Rs.25,000

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25. Rs.60,400.

26. This document was obtained on 19‑6‑71 by the plaintiffs. According to the learned counsel for the plaintiffs it was just a security to safeguard their interest. It seems that when the plaintiffs perused the matter with the defendant No.2, he executed these documents to satisfy them. It could not be a real transaction because on 19‑6‑1971 when these documents were executed the overdraft amount had already been adjusted on 17‑6‑71. There was no need to obtain Rs.85,400 from the plaintiffs. And further if the plaintiffs had paid Rs.85,400 on 19‑6‑1971 for adjustment in the account of Moazzam Impex, there was no reason to refund Rs.25,000. It seems that to save himself the defendant No.2 was adopting these tactics so that the plaintiffs remain silent and may not proceed against him. Such documents do not wipe out the liability the defendants No.2 and 3 have incurred due to the illegal act of defendant No.2. From the finding on the above is sue it is clear that the plaintiffs entitled to recover Rs.60,400.

27. ISSUE NO.8:

28. The plaintiffs have admitted having received Rs.25,000 but the balance amount of Rs.60,400 was not recovered. The question is whether the plaintiffs are entitled to recover it from the defendants. So far, the defendant No. l is concerned in the facts and circumstances of the case as discussed above, the plaintiffs are not entitled to recover any amount from the defendant No.l as he has no concern with Moazzam Impex or the account in which the amount has been adjusted. Now the liability of defendants No.2 and 3 is to be considered. Defendant No.3 is a bank, of which the defendant No.2 is the Manager. At all material time, he has acted as Manager and dealt with all the transactions and dealings which are complained of by the plaintiffs. The defendant No.3 have not denied that the defendant No.2 was their Manager, nor they have produced any evidence to show what were the duties of a Branch Manager or that he was not authorised to deal with Fixed Deposit Receipts and overdraft accounts and that this lack of authority was widely known to all the Customers dealing with the Bank. In the absence of such evidence it can safely be concluded that a Bank Manager is entitled to deal with the overdraft facilities granted to the customers. Therefore, when the defendant No.2 received Fixed Deposit Receipts from the plaintiffs and adjusted them in the account of Moazzam Impex he was acting in the discharge of his duties in the normal course of business. In such situation it is well settled that the employer is liable to the loss suffered by any party due to mis‑conduct of an employee acting within the scope of his authority.

29. Mr. Shahenshah Hussain the learned counsel for the plaintiffs has referred to Bank of New South Wales Vs. William Owston (1879) to Appeal Cases 270 where it was observed:

30. "The duties of a bank manager would usually be to conduct banking business on behalf of his employers, and when he is found so acting, what is done by him in the way of ordinary banking transactions may be presumed, until the contrary is shown, to be within the scope of his authority, and his employers would be liable for his mistakes, and, under some circumstances, for his proud, to the management of such business.

31. The learned counsel also referred to Warren v. Henlys Ltd. (1948) 2 All England Law Reporter 935 in which while relying on Poland v. John Parr (1927) 1 KB 240 the following statement of law from Salmond on Torts 10th Ed. page 89 was relied upon:‑

32. "A master is not responsible for a wrongful act done by his servant unless it is done in the course of his employment. It is deemed to be so done, if it is either (a) a wrongful act authorised by the master or (b) a wrongful and unauthorised mode of doing some act authorised by the master".

33. The learned counsel also referred to IIkiw v. Samuels and others (1963) 1 Weekly Law Reports 991. In this case against the instructions of his employer the driver of a lorry allowed another person to drive it without checking his competence. It struck the conveyor belt and the plaintiff was injured. He filed suit for damages against the employer. Holding the employer liable it was observed:‑

34. "The driver of the vehicle, Waines, was employed, as I see it, not only to drive, but to be in charge of his vehicle in all circumstances during any such time as he was on duty. That means to say that, even when he was not himself sitting at the controls, he remained in charge of the lorry, and in charge of his employers representative. His employers must remain liable for his negligence so long as the vehicle was being used in the course of their business. As I understand the authorities, the employers escape liability if, but only if, the vehicle was, at the time of the negligent act, being used by the driver for the purpose of what has been called a 'frolic' of his own. That is not this case. Here, at the material time, this vehicle was in fact being used in the course of the defendants business".

35. In this regard reference can be made to Moris v. Marton & Sons (1966) I QB 716 in which Lord Denning M.R. observed as follows: ‑

36. "From all these instances we may deduce the general proposition that when a principal has in his charge the goods or belongings of another in such circumstances that he is under a duty to take all reasonable precautions to protect them from theft or depredation, then, if he entrusts that duty to a servant or agent, he is answerable for the manner in which that servant or agent carries out his duty. If the servant or agent is careless so that they are stolen by a stranger, the master is liable. So also if the servant or agent himself steals them or makes away with them".

37. Reference can be made to Loyd v. Grace, Smith & Co. (1912) AC 716 United Africa Co. Ltd. v. Saka Owoade (1955) A.C. 130 and Russo Chinese Bank v. Li Yan Sam (1910) A.C.174. In the last case it was observed:‑

38. "The duties of a Bank Manager would usually be to conduct banking business on behalf of his employers, and when he is found so acting, what is done by him in the way of ordinary banking transactions may be presumed, until the contrary is shown, to be within the scope of his authority, and his employers would be liable for his mistakes and, under some circumstances, for his frauds, in the management of such business".

39. From these authorities it is well settled that the liability of a bank for the misconduct of its employees or Manager depends upon the extent of authority which the employee may be expected to have. In this regard if there is any lack of authority which is known to the plaintiff then the bank can dispute its liability. Where the employee acting in the normal course of business acts dishonestly or fraudulently thereby causing loss to the customers, the bank will be liable to compensate them.

40. In the present case the defendant No.2 was acting as Manager of the branch of defendant No.3. In that capacity the defendant No.2 was incharge of the branch dealing with the entire banking business on behalf of its employer. It was in the course of his employment and discharge of his duties that the defendant No.2 received the Fixed Deposit Receipts and wrongfully adjusted in another account with which the plaintiffs had no concern. The defendant No.2 in the ordinary course of business of the defendant No.3 having authority to deal with F.D. Rs . and overdrafts wrongfully deprived the plaintiffs of their Fixed Deposit Receipts. In these circumstances the defendant No.3 is liable to compensate the plaintiffs for the loss suffered by them due to the wrongful act of the defendant No.2.

41. ISSUE NO.9:

42. The question now arises in what terms decree should be passed and against which defendant. As discussed above the defendant No.l cannot be held liable. The plaintiffs have recovered Rs.25,000 from defendant No.2. Therefore, they can claim to the extent of Rs.60,400 only. The plaintiffs have also claimed interest on this amount @ 9% per annum from 17‑6‑71 to 17‑12‑73 amounting to Rs.19,215. From the evidence it is clear that the defendant No.2 after calculating the interest which had accrued on Fixed Deposit Receipts adjusted it in the account of defendant No.l. The plaintiffs were thus entitled to interest on the sum deposited by them. The plaintiffs have received Rs.25,000 on 17‑6‑1971 therefore, they would be entitled to a sum of Rs.60,400 and interest @ 9% P.A. from 17‑6‑71 till 17‑6‑73 when the suit was filed. On this basis they are entitled to Rs.10,872 instead of Rs.19,215 as claimed by them.

43. The suit is decreed for Rs.71272 against the defendants No.2 and 3 jointly and severally with interest @ 9% P. A. from the date of suit till recovery and proportionate cost.

44. A.A./A‑255/K Suit decreed.