In Good Faith, With 'Due' negligence

For a Banker like me, The Negotiable Instruments Act, 1881, is the Gita to which all bankers in India have to refer on all occasions. Section 10 of this Act defines ‘Payment in Due Course' as ‘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 therin mentioned’.

The two key terms in any Banking transaction are ‘Good Faith’ and ‘Without Negligence’. However, no situation in a Banker’s life is ever perfect or ideal so that s/he can strictly abide by these two acid tests . Doing things in good faith is alright but sometimes, to garner business, to ‘help’ a customer, or fearing loss of good business, bankers sometimes have to dilute the other term ‘Without Negligence.’ In such situations, a banker follows what in lighter banking parlance is called ‘With Due Negligence’.

For example, it is a fact that no two signatures of the same person are identical in all features. There is always a slight variation. So while paying a cheque, a practical banker has to ignore small variations in the signature of the account-holder. An unofficial axiom followed by bankers in this regard is that if a signature is perfectly identical with the Specimen Signature of a customer lodged with the bank, it is a forged one. That is because only a perfect forger can copy a signature perfectly.

Besides this, many times, for fear of losing business, a banker has to believe and trust the customer. However, many times, later on, this trust is proved to be misplaced. Believing the customer, a banker sometimes ignores or sidesteps some laid down guidelines of the Bank and lands in trouble.

I shall narrate an incident which I became involved way back in 1982. It was my first assignment as a Branch Manager. It was a small District Head Quarters Branch. The customer was a big company with its Head Quarters at Kolkata. It had a Unit and a factory in that small place. The Company was the most-valued customer of the Branch. A Bill for over Rs. 10 lakh , accompanied by Lorry Receipt was received by us through another Bank. One of the instructions of that Bank was to collect along with the principal amount, interest on the Bill amount at certain percent from a specified date till the date of actual payment. One day I received a telephone call from the Managing Director of the local Unit of the Company informing me that they would pay the Bill that day. He informed me that he had talked to the supplier of the goods and that the latter had agreed to waive the interest. He added that their letter addressed to the supplier confirming their telephonic talk about waiver of interest would take a day to prepare and he requested me to release the Bill on payment of the principal amount only. Since the goods covered by the Lorry Receipt were urgently required by them they wanted to get the Bill released that day itself. He assured me that the letter would definitely reach me the next day. He concluded assuring me not to worry at all.

When the Company’s man came to the Bank to pay the Bill without interest and take the Lorry Receipt for taking delivery of the goods, the Officer in charge of the concerned Section of my Branch came to me. I told the Officer not to worry since the M D was a big man and that he would not let us down. The Officer had his misgivings and so I authorized receiving the Bill amount without interest.

The letter from the Company did not come the following day. So I telephoned to the M D about it and he said that the letter was being prepared. “It will be on your table this afternoon or latest by tomorrow morning.”, he said.

The letter did not come on the promised day.

After following up for a week, I received the copy of the Company’s letter to the supplier. On reading it I felt as if the ground had slipped from underneath my feet. Instead of confirming the so-called consent for waiving the interest, the letter listed a large number of allegations against the supplier and ended with, “In view of the foregoing, we are not paying the interest.”

I tried to speak to the M D but his people said that he was busy. I tried to meet him but his people said that he was busy in a meeting which would go on till late in night.

A week after that, I received a letter from the authorities of my Bank asking me to explain why the interest amount of about Rs. 95,000.00 (And this was 30 years ago!) was not collected. The supplier’s Bank had complained to my Bank’s Head Office.

After numerous efforts, I could meet the M D and showed him the letter from my Bank regarding the Bill. He smiled nonchalantly and said, “Don’t worry; you can leave your Bank and join our Company.”

It was my good luck that the M D was shifted soon thereafter and a new person took over. The new M D arranged for payment of the interest-amount.

So much for ‘good faith’.!!!

ADDENDUM

Daughter I and the daughter of the earlier M D were studying in the same school and same class and were close friends. They used to visit each others’ homes. Often, I used to take my daughter to her friend’s home.