Legal Opinion regarding suit filed by Bank 1, Corporate Branch, Khulna, claiming refund of proceeds of alleged forged Demand Drafts (DD) against Bank 2.

Mr. Z

Address….

Dear Sir

RE:     Legal Opinion regarding suit filed by Bank 1, Corporate Branch, Khulna, claiming refund of proceeds of alleged forged Demand Drafts (DD) against Bank 2.

We refer to your letter no. ……………….. dated 23 August 2006 on the above subject.

From your letter and the documents provided is appears that at the request of Mr. X Bank 2’s (“BANK 2”) opened a Current Deposit (CD) Company 1 on 15.12.2005 in the name of ‘Company 1’ (“the Company 1”). Thereafter, Mr. X, proprietor of the Company 1, between 28.12.05 and 23.01.06 deposited 12 Demand Drafts having total value of Tk. 5.82 Lac which appeared to be issued by Bank 3 drawn on Bank 1 Corporate Branch, Khulna in the Company 1. BANK 2, KDA Branch, Khulna had collected all the Demand Drafts from Bank 1 through Bangladesh Bank clearing house. Clearing adjustments were completed and Mr. X has withdrawn the proceeds on different dates from the Company 1.

Subsequently, Bank 1 Corporate Branch, Khulna informed BANK 2, KDA Branch, Khulna that the said 12 Demand Drafts were forged. Bank 1 also informed BANK 2, KDA Branch, Khulna that Mr. X had also deposited some other Demand Drafts through some other banks. Bank 1 served a Legal Notice dated 23.04.06 on Mr. X with copies to the Banks through which the Demand Drafts were collected including BANK 2, KDA Branch, Khulna and Bank 1 lodged Criminal case no. 12(2)06 with Khulna Thana. Bank 1 Corporate Branch, Khulna has also filed case being Money Suit no. ………… in Joint District Judge, 1st Court, Khulna against Mr. X and the collecting Banks including BANK 2, KDA Branch, Khulna.

In these circumstances, you require our legal opinion on the following points:

i)                    What is the law/norms for collecting final settlement of Demand Draft issued by a Foreign Bank?

ii)                   What are the responsibilities of the collecting Bank in collecting such Draft?

iii)                 What is the consequence if such Draft(s) are found to be forged?

iv)                 Whether BANK 2, KDA Branch, Khulna could be held responsible in any aspect regarding the transactions if the Drafts are found to be forged?

v)                  Whether Bank 1 is entitled to recover the amount of the Drafts and/or any compensation from BANK 2, KDA Branch, Khulna?

vi)                 What is the best possible course of action of BANK 2 in these circumstances?

OUR OPINION:

Our opinion in relation to query (i) is that there is no difference between the law/norms governing the collection of final settlement of Demand Draft issued by a Foreign Bank and those issued by a Domestic Bank.

Queries (ii) to (v) are interrelated and as such our opinion related to these issues are given concurrently.

According to Sections 131, 131A and 131B of the Negotiable Instruments Act 1881 where a banker in good faith and without negligence receives payment of a draft for a customer and the customer has no title or defective title to the draft, the banker shall not incur any liability by reason of having received such payment. But where the Banker has made no enquiries at strange and suspicious behaviour of a customer who opened an Company 1 with the banker and failed to make further inquiries to detect whether in given circumstances Company 1 was being opened by customer for ulterior purposes, then the Bank would be held to have committed gross negligence and would be held liable.

In our present case, there appears no apparent strange or suspicious behaviour on the part of Mr. X, which could have been detectable by BANK 2, KDA Branch, Khulna. No strange behaviour is apparent from reviewing the Statement of Company 1. From the Statement of Company 1 it appears that there had been normal transactions (including debits and credits) in the Company 1 before the Demand Drafts were deposited. BANK 2 could not be said to have been negligent in allowing Mr. X to open an Company 1 in the concern’s name. BANK 2 had rightly relied upon the introduction of another respectable customer of BANK 2. Moreover, Mr. X did not open the Company 1 with the Demand Drafts but with cash.

As such in our opinion, BANK 2 may not be found at fault with. It could not be said that there were circumstances warranting suspicion by the collecting bank, BANK 2 that Mr. X was not the true owner of the Demand Drafts. BANK 2 has taken all the precautions in the normal course of banking business and there was no negligence on the part of BANK 2. BANK 2 has no liability whatsoever towards Bank 1 and as such Bank 1 cannot recover the amount of the Drafts and/or any compensation from BANK 2.

Regarding query (vi) the best course of action of BANK 2 is to defend the suit filed by Bank 1. As the onus of proving good faith and absence of negligence as contemplated by Section 131 of the Negotiable Instruments Act 1881 is on the Banker claiming protection under the Act, BANK 2 have to prove to the satisfaction of the learned court that they acted in good faith and in absence of negligence.

If you have any further inquiry, please do not hesitate to contact us.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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