Indian Overseas Bank v. Industrial Chain Concern

Facts

• Industrial Chain Concern deposited bills for collection with Indian Overseas Bank
• The bank delayed presentation beyond reasonable time
• The drawer's funds were depleted in the interim
• The customer suffered loss and sued the bank for breach of duty

Issue

1. Whether a bank collecting bills on behalf of a customer acts as agent and owes duties of reasonable diligence.

Held

• The collecting bank acts as agent of the customer. Under S.212, it must exercise skill and diligence of the standard expected in the banking business. This includes presenting bills within reasonable time, giving proper notice of dishonour, and following instructions. Failure constitutes breach of agency duty; the bank is liable for consequential loss.

Ratio Decidendi

The collecting bank is an agent (S.182) owing duties of reasonable skill and diligence (S.212). Delay in presentation or failure to give timely notice of dishonour is a breach rendering the bank liable for the customer's loss.