Name – Jaiy Chandhar C

Register Number – 1550227

BEFORE THE HON’BLE SUPREME COURT OF INDIA

M/s MERCHANTS BANK

..... APPELLANT

V.

ROYAL ARCADE LTD AND ANOTHER

..... RESPONDENTS

CIVIL APPEAL NO. /2020

ON SUBMISSION TO THE HON’BLE SUPREME COURT OF INDIA

UNDER ARTICLE 136 OF THE CONSTITUTION

WRITTEN SUBMISSIONS ON BEHALF OF THE APPELLANT

MEMORIAL FOR APPELLANT Page 1

 TABLE OF CONTENTS

INDEX OF AUTHORITIES......................................................................................................3
TABLE OF ABBREVIATONS……………………………………………………………….4
STATEMENT OF JURISDICTION..........................................................................................5
STATEMENT OF FACTS.........................................................................................................6
STATEMENT OF ISSUES .......................................................................................................8
SUMMARY OF ARGUMENTS..............................................................................................9
ARGUMENTS ADVANCED..................................................................................................11
PRAYER .................................................................................................................................21

MEMORIAL FOR APPELLANT Page 2

 INDEX OF AUTHORITIES

BOOKS:

1. H.M. Seervai Constitutional Law of India, 439 (4th ed, 2013).

2. M.P Jain, Indian Constitutional Law, 1169 (Lexis Nexis, 6th Ed., 2010).
3. Ratanlal and Dhirajlal, The Law of Torts, 26th Ed. (2013)

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 STATEMENT OF JURISDICTION

THE APPELLANT HAS APPROACHED THIS HON’BLE SUPREME COURT OF INDIA

UNDER ARTICLE 136 OF THE CONSTITUTION

“136. Special leave to appeal by the Supreme Court

(1) Notwithstanding anything in this Chapter, the Supreme Court may, in
its discretion, grant special leave to appeal from any judgment, decree,
determination, sentence or order in any cause or matter passed or made
by any court or tribunal in the territory of India
(2) Nothing in clause ( 1 ) shall apply to any judgment, determination,
sentence or order passed or made by any court or tribunal constituted by
or under any law relating to the Armed Forces”1

1
Article 136, The constitution of India, 1950

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 STATEMENT OF FACTS

FACTS OF THE CASE

1. Royal Gin Inn is a high-end gambling center in Goa which primarily caters to expatriate
businessmen. Royal Arcade Ltd. is the parent company of Royal Gin, which can be
known from Royal Gin’s website and public financial records.

2. Royal Gin’s head of international marketing is Mr. Rathode, who was assisting a
customer, Mr. Kamlesh to set up an account at Royal Gin. Mr. Kamlesh expressed that he
had made a huge fortune in his real-estate business and wanted to purchase chips worth
Rupees Fifty Lakhs, which he wanted to pay via a cheque drawn from his account at
Merchants Bank.

3. Mr. Rathode accepted Mr. Kamlesh’s trade but believed that since Mr. Kamlesh was a
new customer, in accordance with Royal Gin’s policies, he should do due diligence with
the Merchant’s Bank of Mr. Kamlesh to ensure the funds were available to him. Royal
Gin’s practice was to ensure that when Royal Arcade made bank-to-bank request for
reference without mentioning purpose of the funds sought, it could maintain customer
confidentiality.

4. Royal Arcade instructed its own bank to ask the merchant bank to confirm such
availability of funds with Mr. Kamlesh. No mention of Royal Gin was made to the
Merchant Bank, to ensure confidentiality. An employee of the Merchant Bank confirmed
that Mr. Kamlesh had such funds, in the excess of seventy-five lakhs and presented him
as financially healthy to the bank of Royal Arcade. Satisfied with this, Mr. Rathode
accepted Mr. Kamlesh’s cheque and he began to gamble at Royal Gin.

5. When Royal Gin tried to cash Mr. Kamlesh’s cheque, it transpired that the cheque was a
high-quality counterfeit and that Mr. Kamlesh was still in the process of opening his
account with the Merchant Bank and it wasn’t fully opened yet, and therefore, there were
no funds in it yet. Merchant Bank refused to honor the cheque and Mr. Kamlesh soon
disappeared.

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6. Royal Arcade filed a case of negligence against the Merchant Bank, claiming that their
duty of care extended to Royal Gin, since Royal Arcade was acting as a gambling house
agent. They also claimed that the Merchants Bank would not have acted differently had
they known that Royal Arcade was acting for Royal Gin Inn.

7. The Merchants Bank asserted that – a) Duty of Care only extended to Royal Arcade; b) in
any event its reference related only to Mr. Kamlesh’s credit worthiness and not the
possibility that he might present a counterfeit cheque.

8. The Trial Court passed the judgment in favor of Merchants Bank on both points. But in
an appeal to the High Court, allowed the appeal on both points and held that the test for
liability is met where one party is acting for an agent, even if unknown to the other party
and that Royal Gin’s loss arose out of Mr. Kamlesh’s lack of credit than the presentation
of the false cheque, and passed the decision in favor of Royal Arcade.

9. Merchant Bank has now appealed to the Supreme Court.

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 ISSUES RAISED

1. WHETHER THE PETITION FILED UNDER ARTICLE 136 OF THE

CONSTITUTION IN MAINTAINABLE BEFORE THIS HON’BLE SUPREME
COURT?

2. WHETHER THE APPELLANT OWES A DUTY OF CARE TO THE

RESPONDENT ?

3. WHETHER THE APPELLANT IS VICARIOUSLY LIABLE FOR THE

NEGLIGENCE ON THE PART OF ITS EMPLOYEE?

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 SUMMARY OF ARGUMENTS

1. WHETHER THE PETITION FILED UNDER ARTICLE 136 OF THE

CONSTITUTION IN MAINTAINABLE BEFORE THIS HON’BLE SUPREME
COURT?

It is humbly submitted before the Hon’ble court that the Special Leave Petition
filed against the decision of the High Court is maintainable under Article 136 of
the Constitution of India. The Appellant has required locus standi to approach
this Hon’ble Court as gross injustice has been done against the appellant . The
High Court in the impugned order has erred in reversing the order passed by the
Trial Court wherein it, held that the duty of care of the Bank extended only to
Royal Arcade Ltd and that the reference was made only with respect to the credit
worthiness of Mr. Kamlesh and not to the possibility that he might commit
fraud.

2. WHETHER THE APPELLANT OWES A DUTY OF CARE TO THE

RESPONDENT?

It is humbly submitted before the Hon’ble court that there is no duty of care towards
the Respondent No. 2 in this case. The Appellants contend that as an undisclosed
principle, Respondent No. 2 cannot impute or imply a duty of care when the credit
reference given by the Appellant was to Respondent No. 1, who did not reveal that it
was acting on behalf of Respondent No. 2. The Appellant contends that the duty of
care, if any, extends only to Respondent No. 1 as it was the latter that sought the
credit reference and that Respondent No. 2’s involvement in the transaction was not
revealed to the Appellant.

3. WHETHER THE APPELLANT IS VICARIOUSLY LIABLE FOR THE

NEGLIGENCE ON THE PART OF ITS EMPLOYEE AND WHETHER THE
SAME EXTENDS TO THE RESPONDENT?
It is humbly submitted before the Hon’ble court that the Bank cannot be held
vicariously liable for the acts of its employee towards Respondent. The Appellant
Bank also cannot be held liable towards the Respondent No.2’s losses as the duty of
care also extended to the act of the employee in ascertaining the creditworthiness of

MEMORIAL FOR APPELLANT Page 8

Mr. Kamlesh and did not extend to foreseeing/predicting the possibility of him
presenting a fraudulent cheque and absconding.

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 ARGUMENTS ADAVNCED

1. WHETHER THE PETITION FILED UNDER ARTICLE 136 OF THE

CONSTITUTION IN MAINTAINABLE BEFORE THIS HON’BLE SUPREME
COURT?

It is humbly submitted that the Article 136 provides the Hon’ble Supreme Court a
plenary jurisdiction in the matter of entertaining and hearing appeals, by granting of
special leave, against any kind of judgment or order made by a Court or Tribunal, 2 in
spite of there being specific provisions for appeal contained in the Constitution and
laws.3 This Special Leave is granted where there is certain disregard to the forms of
legal process or violation of natural justice or the law. The jurisdiction conferred
under Article 136 upon the Supreme Court is thus a corrective one and not a
restrictive one.

It is submitted that, the mere pendency of large number of cases before the Hon’ble
Supreme Court does not act as a restriction to exercise the Supreme Court’s
jurisdiction under Article 136, moreover it would be better to use the said power on a
case to case bases rather than limiting its power.

It is thus submitted that where it appears prima facie that an order or decision in
question cannot be justified by any judicial standard, the Supreme Courts
intervention is required in order to meet the ends of justice.

It is humbly submitted that substantial and grave injustice has been done in the
instant case and it presents features of sufficient gravity to warrant a revisit of the
decision by the Hon’ble High Court. There has been a blatant miscarriage of justice
in impugned decision on the following grounds, That the Hon’ble High Court failed
to recognise that the duty of care extended only to Royal Arcade Ltd and That the
Hon’ble High Court failed to realise that the reference related only to the credit
worthiness of Mr. Kamlesh and not to the possibility that he might present a
counterfeit cheque.

2
Om Prakash Sood v. Union of India (2003) 7 S.C.C. 473.
3

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 2. WHETHER THE APPELLANT OWES A DUTY OF CARE TO THE
RESPONDENT NO 2?
i. The claim of negligence against the Appellant is founded upon the allegation that the
duty of care owed by the Appellant to Respondent No. 1 extends to Respondent No. 2
as the former was acting as the agent of the latter. It is the contention of the Appellant
that this artificial extension of the duty of care is unreasonable and founded on an
incorrect interpretation of the law. For the purpose of illustrating fallacy in the
Respondents’ arguments, the Appellant will be heavily relying on the United
Kingdom Supreme Court (“UKSC”) judgment of Banca Nazionale del Lavoro SPA
v. Playboy Club London Ltd and Ors 4 (“BNL Case”), wherein the facts of the case
are identical to the facts in the instant matter.

ii. In the common law of tort of negligence, specifically the tort of Negligent
Misstatement, three elements need to be proved in order to establish liability. These
three are a) that the person who makes the statement owed a duty of care to the
recipient; b) that the person who made the statement breached that duty; and c) that
the breach of duty caused a loss to the recipient. In the UK, the Supreme Court cases
of Hedley Byrne and Company Limited v. Heller (“Hedley Case”) 5 and Caparo
Industries plc v. Dickman and Others (“Caparo Case”) 6 deal extensively on the tort
of negligent misstatement. The UKSC summarized the law of the abovementioned
judgments. According to the UKSC, in order to establish the duty of care in the case
of negligent misstatement there are three factors:

There must be a reasonable foreseeability that the making of an inaccurate or

negligent statement would cause the recipient loss. Both the possibility of the loss and
the identity of the recipient must be foreseeable.

There must be a sufficient degree of proximity between the person making the
statement and the recipient. This includes if the statement is requested for a particular
purpose and the person giving the statement knew or should have known that purpose.
And It must be fair and reasonable to impose a duty of care.7

4
Lavoro SPA v. Playboy Club London Ltd and Ors [2018] UKSC 43;
5
Hedley Byrne and Company Limited v. Heller [1963] 3 WLR 101;
6
Caparo Industries plc v. Dickman and Others [1990] 2 AC 605;
7
[2018] UKSC 43; See also https://www.lexology.com/library/detail.aspx?g=87fd4226-7617-4506-8aea-
8c0192f54ca9 (accessed on 13 Feb 2020);

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 iii. As far as Indian Law is concerned, in State Bank of India v. Shyama Devi 8, the
Supreme Court relied on the House of Lords decision of the UK of Leesh River Tea
Co. Ltd v. British India Steam Navigation Co. Ltd and observed that “vicarious
liability of an employer for the loss caused to a customer through the
misdemeanor or negligence of an employee, is established, if it is done in the
course of employment and this remains to be determined as a question of fact.”
Thus, vicarious liability for a loss caused to a customer is not presumed but rather
inferred from the facts of each case. In the present case, the credit reference of Mr.
Kamalesh given to Respondent No. 1 was an isolated and complete transaction. For
all intents and purposes, the Appellant argues that Respondent No. 1 was their
customer, and that the Appellant would only be bound vicariously for its employee’s
actions if Respondent No. 1 had suffered any losses. However, it is clear from the
facts of the instant matter that Respondent No. 1 has suffered no losses on account of
the Appellant’s credit reference. This fact notwithstanding, Respondent No. 1 has
argued that the loss suffered by its associated company, that is Respondent No. 2
acts to extend the duty of care owed to it, to its associated company as well.

V. It is the contention of the Appellant that this argument is baseless and unreasonable
and does not satisfy the relevant rules of negligent mis-statement as defined above in
para 3. In the BNL Case, the UKSC held that the Bank in that case did not owe
any duty of care to the “Undisclosed Person”, that is the Playboy Club (whose
position directly corresponds to that of Respondent No. 2 in the instant matter)
and was as such not liable for negligent misstatement. The UKSC stated that “the
Bank was not aware, and had no reason to suppose, that the associated company had
requested the reference for the Casino. Indeed, the Bank knew nothing of the Club
and so plainly did not voluntarily assume any responsibility to it.”

vi. The UKSC further went on to observe that the representation, that is the credit
reference was requested by the associated company, (whose position is that of
Respondent No. 1 in the instant matter) and directed simply and solely to said
associated company. Differentiating it from past judgements, the UKSC stated that
in the BNL case, the bank did not know the identity of the person who was
ultimately going to rely on it and they could therefore not be held responsible to all
and sundry who rely on the information; this was in line with the judgement of the
8
State Bank of India v. Shyama Devi 1979 (49) Comp.cas.130 (India).

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 UKSC in the Caparo case. Accepting the luck of the bank in the matter the UKSC
concluded that despite their sympathy towards the Club, it was clear that in
obtaining and relying on any kind of advice it is important for the party seeking the
advice to make it clear who will be relying on the advice and for what purpose the
advice is being sought.

vii. Given this standing in common law, the Appellant contends that the order of the
Hon’ble High Court holding that (i) the test for liability is met where one party is
acting for an agent, even if unknown to the other party and (ii) that the loss of
Respondent No. 2 arose out of Mr Kamalesh’s lack of credit rather that his
presentation of a false cheque is unreasonable and bad in law. On the first point of
the liability to an unknown party, the common law has been discussed in the above
paragraphs with reference to the BNL Case. In instances of credit references of this
sort, it is a material requirement that the person making the reference is aware who
will be using the information and is therefore liable only to the persons so identified.
In the instant matter, the Appellant was only aware of Respondent No. 1’s
involvement and was in no way intimated that the information was going to be used
by anyone else. As such, the Appellant was unaware of Respondent No. 2’s
involvement in the case. The Appellant provided the credit reference to Respondent
No. 1 on the latter’s request and only attested to the fact that (a) Mr Kamalesh had
an account with the Appellant and that (b) he had the requisite funds in his account.
Therefore the credit reference could not in any way be treated as a guarantee that Mr
Kamalesh will not default on his debts and was only a statement as to his
creditworthiness.

viii. On the second point of the loss being caused as a result of the lack of credit and not as
a result of the false cheque, the Appellant contends that this interpretation of the law
is entirely mistaken and preposterous. As far as Respondent No. 2 was concerned,
the Appellant contends that they acted, without the Appellant’s knowledge, on the
credit reference given to Respondent No. 1. The Credit Reference, though
admittedly negligent, stated that Mr Kamalesh was credit worthy and Respondent
No. 2 acted on this information. Therefore, Respondent No. 2 was under the
impression that Mr Kamalesh would not lack credit. Respondent No. 2 only came to
know about Mr Kamalesh’s fraud after they tried to cash in his cheque. Only then
did Respondent No. 2 suffer any loss. Given these circumstances, the argument that

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the lack of credit can be identified independently to the false cheque as the cause of
the loss is not only factually incorrect, but also creates an unreasonable
interpretation against the bank. The lack of credit and the false cheque are co-
extensive facts that cannot exist in isolation in the factual matrix of the instant case.
Therefore, the Appellant humbly contends that the Hon’ble High Court’s holding
that Respondent No. 2’s loss was caused due to the negligent credit reference and
not the false cheque given by Mr Kamalesh is in and of itself, baseless, incorrect and
liable to be struck down.

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 3. THAT THE APPELANT IS VICARIOUSLY LIABLE FOR THE NEGLIGENCE
OF ITS EMPLOYEE’S WHICH ALSO EXTENDS TO THE RESPONDENT
i. The general principle of liability states that one person cannot be held liable for the
wrongful acts of another person. However, there are exceptions to this principle where
a person can be held liable for the wrongful acts of another person. One such
exceptional principle is now known as the ‘Doctrine of Vicarious Liability.’ For such
an exceptional circumstance to arise, there are the following kinds of relationships
which must exist to attract this doctrine, namely ,Principle – Agent relationship
,Employer – Employee relationship ,Partners in a partnership , Master – Servant
relationship This doctrine is based on the maxim ‘qui facit per alium facit per se,’
which means that the liability of the master will arise not only for those acts done
by the servant which he expressly authorizes him to do so, but also those other acts
which the servant engages in during the ‘Course of his Employment.’ Thus, in order
to hold the master/employer liable for the acts of the servant/employee, it is necessary
to analyze whether the acts of the servant/employee are within the course of
employment or they are beyond the scope of his employment.

ii. To determine whether an act is within the course of employment, it has to be analyzed
whether the act was incidental to or within the class of acts that the servant was
normally employed or authorized to do. In the case of Lloyd v. Grace Smith & Co.9
the House of Lords held that, the master is liable for the act of his servant despite the
fact that the servant was acting not for the benefit of his master rather for his own
benefit. Thus, to establish master’s liability, there is an obligation on the plaintiff to
prove that the agent was working within the scope of his authority, it is not necessary
to prove if the impugned act was for the benefit of the master. It was also held in the
case of Bank of India v. Shyama Devi10 that to determine if the loss caused was due
to the acts of the employee and if the employer can be held liable for the same,
remains to be determined as a question of fact. It is humbly submitted that in the
present matter, the employee working for the Merchant Bank was acting within the
course of his employment while affirming the creditworthiness of Mr. Kamlesh and

9
Lloyd v. Grace Smith & Co (1912) A.C. 716.
10
Bank of India v. Shyama Devi 1979 (49) Comp. Case. 130(India).

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 disclosing such information to the bank of the Respondent No. 1, namely Royal
Arcade. The Appellants, Merchant Bank, in this present matter is not liable for the
acts of their employee but only to the extent of the loss caused to Royal Arcade from
the acts of the employee.

iii. It is humbly submitted before this Hon’ble Supreme Court that in the present matter,
the Appellants is not vicariously liable for the acts of its employees extending to the
duty of care owed towards the customer of the Merchant Bank, A bank’s duty of care
arises from the ‘Neighbor Principle’ wherein the bank owes a duty of care to any
person that he can reasonably foresee as likely to suffer injury by his action, this is the
11
standard of care to be applied to a reasonable banker. It is humbly submitted that in
the present matter, the reasonable duty of care that is expected by the Appellant bank
is towards its customer, which is Respondent No.1, namely Royal Arcade and not
Royal Gin. Therefore, it is submitted that the Appellant bank cannot be held
vicariously liable for the acts of its employees for the loss incurred by Respondent
No.2 as they were not the customer of the Appellant bank, nor could the Appellant
bank foresee any loss to be suffered by Royal Gin as such information was not
disclosed to the Appellant Bank by the Respondent No.1.

iv. In the case of Banca Nazionale del Lavoro v. Playboy Club London,12 the U.K
Supreme Court held that such a relationship between the banker-customer can be
equated to a contract and therefore, a third party who is not part of this contract cannot
claim liability in case of loss by the acts of one party, who could not foresee the
possible harm to such a party. Furthermore, disclosure of information is essential for a
contract to ensure that both parties are at an equal platform in the contract. In the
present matter, the Respondent No.1, by not disclosing the information about Royal
Gin Inn put them at an uneven playing field and the acts of the Respondent No.1 can
be questioned in terms of validity of the contract.

v. It is humbly submitted that the duty to disclose information in the present matter
supersedes the duty of confidentiality that Respondent No. 1 owed to Respondent
No.2. The Respondent No.1 failed to disclose that the information they required was

11
Karak Brothers Company Ltd. v. Burden, (1972) AII E.R. 1210.
12
Banca Nazionale del Lavoro SpA v. Playboy Club London Ltd and Ors, [2018] 1 W.L.R. 4041.

MEMORIAL FOR APPELLANT Page 16

 in relation to Mr. Kamlesh’s trade with a Gambling service provider, namely Royal
Gin Inn. Therefore, this lack of full disclosure on part of the Respondent No. 1 cannot
hold the Appellants liable for the loss suffered by a party of whom the Appellants had
no information about being party to the transaction. It is also humbly submitted that
the duty of care that the appellant owed in the present matter only extended to the act
of its employee which was reasonably expected. In the present matter, the employee
was ordered with the task to assess and report the credit worthiness of a prospective
client of the Appellant, Mr. Kamlesh.

vi. The employee did assess the individual’s creditworthiness and report the same to the
Respondent No.1’s bank, however, it is improbable to expect the Appellants to be
held liable for the act of Mr. Kamlesh to present a high-quality fraudulent Cheque to
the respondents. This act cannot be reasonably expected to be detected by the
Appellant and this act is the primary reason for loss to the Respondent No.2. It has
been held that when there are no sufficient funds in the customer’s account to meet a
particular cheque drawn by the customer, the bank is under no legal obligation to pay
part of the sum for which a cheque is drawn. 13 Therefore, in the present matter, the
Appellant bank cannot be held liable for the presentation of a fraudulent cheque as
their liability only extended to ascertaining the creditworthiness of Mr. Kamlesh, and
that too such liability is does not extended to Respondent No.1, Royal Arcade who are
a customer of the Appellant Bank and towards the Respondent No.2 in the present
matter.

13
Joachimson v. Swiss Bank Corp. [1921] 3 K.B. 110.

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 PRAYER

Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is
humbly requested by the Appellant before this Hon’ble Court that it may be pleased to
adjudge and declare:

1. That the SLP is maintainable under Article 136 of the constitution of India, 1950.

2. That the Appellant does not owe a duty of care towards Respondent No. 2.

3. The Appellant is not vicariously liable for the for its employee’s negligence as the check
presented was fake.

And pass any such order, writ or direction as the Hon’ble Court deems fit and proper, for this
the Respondents shall duty bound forever humbly pray.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

COUNSELS FOR THE APPELLANT

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