Canara Bank Ltd. v. I. V. Rajagopal (1975)

It is the Indian authority on wrongful dishonour of a cheque, and it is valuable for two things the textbooks state abstractly and this case works out on real facts.

The first is the trader and non-trader distinction. A trader whose cheque is wrongly dishonoured recovers substantial damages without proving actual loss; a non-trader must prove special damage. Students can recite the rule; few can say why it exists, and fewer still can show what a non-trader must actually prove. This case does both.

The second is causation. The bank's answer in such cases is always that the loss was too remote — that the dismissal, the lost contract, the ruined reputation, came about through other people's decisions. The court's treatment of that argument is the most transferable part of the judgment.

The plaintiff had a personal account with the Canara Bank Limited at its Madras branch. He was the representative at Madras of a reputed group of concerns at Coimbatore and its sister concerns, and the group's Madras liaison office had a telephone standing in the name of one of those companies. The telephone was in the plaintiff's sole administrative custody.

In the course of his official duties the plaintiff gave a cheque for Rs. 294-40 towards the telephone bill. He drew it on his own personal account with the defendant bank.

On 8 April 1964 the cheque came for clearance and the bank did not honour it, although the plaintiff had Rs. 653-83 to his credit.

On 24 April 1964 the telephone department advised the plaintiff of the dishonour. He met the bank's officials on 28 April; the manager expressed regret and approached the telephone department asking it to re-present the cheque. The department was not interested, but on the plaintiff's own prompt steps the cheque was honoured on 7 May 1964. Meanwhile, the bill remaining unpaid, the telephone had been disconnected on 6 May 1964 and was later restored.

The plaintiff explained the circumstances to his employers. They did not accept the explanation, and on 15 June 1964 his services were terminated. He was then fifty years of age, and had been earning Rs. 600 a month besides free boarding and lodging and a car.

He sued the bank. He claimed special damages of Rs. 36,000, being the salary he would probably have earned over five years from the date of termination, and general damages for loss of prestige, status and mental agony.

1. Was the bank liable for dishonouring a cheque although the customer had sufficient funds?
2. Was the dismissal too remote a consequence of the dishonour?
3. What damages may a non-trader recover, and on what proof?

The bank was liable. The decree of the trial court was confirmed: Rs. 10,000 as special damages and Rs. 4,000 as general damages, a total of Rs. 14,000, with interest at six per cent per annum from the date of the judgment below until payment. The appeal was dismissed with costs.

Causation

The bank's remoteness argument failed. The court adopted the proposition that a negligent act may be the effective cause of an injury though it may not be proximate in time, if it is the particular incident, in a chain of events which has in fact led to the injury, that is the real cause of the subsequent accident. To determine responsibility the law will consider the proximate and not the remote cause of an injury.

To that was added the rule from Davis v. Garrett: no wrongdoer can be allowed to apportion or qualify his own wrong; as a loss has actually happened while his wrongful act was in operation and force, and which is attributable to his wrongful act, he cannot set up as an answer to the action the bare possibility of a loss if his wrongful act had never been done.

On that footing the court had no hesitation in finding that the dismissal was due to the dishonour of the cheque, which resulted in the telephone being cut off.

Traders and non-traders

The court approved the distinction invariably made between traders and non-traders in the matter of recovering damages from a negligent banker, and explained its foundation.

The line is traceable to the principle that the credit of a trader, if marred and injured without reasonable cause, is likely to mar totally his reputation and credit in the market. It is that which prompted courts of law to award substantial damages to a trader on wrongful dishonour without proof of actual loss to the customer.

A non-trader is differently placed. Secrecy is maintained as between a non-trader customer and his banker. The fact that a particular cheque, big or small, has been dishonoured affects that customer and his prestige, but has no deleterious effect in the eye of the community at large. It is for that reason that courts call for proof of special damage where the dishonoured cheque is a non-trader's.

Notice what this does to the secrecy doctrine. The banker's duty of secrecy, which normally protects the customer, here operates to reduce his damages: because the dishonour is not published to the market, the non-trader must show what it actually cost him.

Assessing the damages

The plaintiff was a non-trader and therefore had to prove special damage — which he did. He was earning Rs. 600 a month. He obtained employment again between 1964 and 1966. He claimed Rs. 36,000, being five years' probable salary from the date of termination at the age of fifty. The trial court, taking every aspect into consideration, estimated the special damages at Rs. 10,000, and the appellate court agreed that this was a reasonable assessment. So long as the damages claimed are not remote and purely speculative, courts are bound to consider the reasonable requests of injured parties and grant them proper relief.

Of the Rs. 14,000 claimed as general damages for loss of prestige, status and mental agony, the trial judge awarded Rs. 4,000. Neither figure was seriously attacked on appeal.

A banker who dishonours his customer's cheque although the customer has sufficient funds properly applicable to its payment is liable in damages; the dismissal of the customer from employment, brought about through the disconnection of a telephone whose bill the cheque was to pay, is not too remote; and a non-trader customer may recover special damages on proof of actual loss, together with general damages for loss of prestige, status and mental agony.

Section 31 of the Negotiable Instruments Act 1881 is the provision: the drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so, and in default of such payment must compensate the drawer for any loss or damage caused by such default.

Two points follow, and both are examinable:

• The duty runs to the drawer, that is, to the bank's own customer. The payee has no action under s. 31; his remedy, if any, is against the drawer on the underlying debt.
• The funds must be properly applicable. A balance subject to a garnishee order, a lien, or the bank's right of set-off is not properly applicable, and refusal is then not wrongful.

The grounds on which a bank may lawfully refuse include an order of a court or a competent tax authority; otherwise the dishonour becomes wrongful and the bank is liable in damages for loss of credit or injury to reputation.