TaxTMI 
TaxTMI 
2003 (10) TMI 691
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....the co-operative banks/societies have filed more than one petitions in respect of different fixed deposit receipts. Common contentions have been urged in all these appeals. Accordingly, the appeals were heard together and are being disposed of by this common judgment. Proceedings before the learned Single Judge 2.0 The facts leading to filing of the petitions are as under :- 2.1 The petitions were filed by 22 co-operative banks or co-operative credit societies for directing Bank of Baroda and Indian Bank (hereinafter referred to as "the appellants" or "the Nationalized Banks") to refund the amounts of fixed deposit receipts which the petitioners had invested with different branches of Bank of Baroda at Surat and of Indian Bank also at Surat. When the petitioners made inquiries about their annual statement of accounts, they came to know that serious mischief had taken place in as much as the amounts invested by them with the appellants had been misappropriated or substantially misappropriated by fraudulent withdrawals in the form of loans or advances against those fixed deposit receipts without any authorization of the petitioner-banks/societies. In most of the cases, the f....
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....n to point out whether any such exercise was undertaken pursuant to the aforesaid interim order. 2.5 After hearing the learned counsel for the parties in the said group of petitions, the learned Single Judge observed that, while disputed questions of fact may not be gone into by the Court in petitions under Article 226 of the Constitution, the Court was not in a position to give any definite finding as to how and in what manner the fraud, if any, had been perpetrated and how and exactly in what manner the conspiracy was carried out to its logical end and all these may be a subject matter of investigation and inquiry by the CBI and it may also be open to the concerned banks to hold proceedings against their employees, but all the same, the learned Single Judge held that the following important aspects were required to be considered :- (a) under the provisions of Sections 35A and 36B of the Banking Regulations Act, 1949, the Reserve Bank of India has been given the power to issue specific directions in the interest of banking policy in public interest to prevent the affairs of any banking Company being conducted in a manner detrimental to the interests of the depositors o....
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....oard of Directors of the concerned Bank preferably a Chief General Manager or an officer not below the rank of General Manager. II. The member from Bank of Baroda would participate in the meeting of this Committee only when the cases relating to the Bank of Baroda are taken up and the member from the Indian Bank shall participate in the meeting of the Committee only when the cases relating to Indian Bank are taken up. III. The Committee may evolve and follow its own procedure and will also have the power to examine summon or examine the witnesses. IV. This Committee shall examine each and every case on its own merits with reference to the records desired to be made available and will give its findings with regard to the amount due and payable to the concerned petitioners/parties and the rate of interest. The Bank of Baroda and Indian Bank shall inform the Committee in writing about the undisputed amount with full details. This Committee shall also go into the question of the rate of interest payable in case of the undisputed amount which is directed to be paid under this order. It will be also be open for the Committee to opine as to who were the officers....
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....ides and shall be implemented forthwith) given by the learned Single Judge was stayed. (ii) Direction No. X given by the learned Single Judge was modified by directing that "payment or disbursement of the undisputed amount to the parties concerned would be subject to the condition that the said parties shall give valid discharge in writing to the Bank to relieve them of any future liability". This Court allowed the rest of the directions to operate subject to modification that the time limit for making the report was extended from three months to six months from the date of receipt of the Division Bench order. Supreme Court orders in Civil Appeals. 4. Bank of Baroda challenged the aforesaid interlocutory order dated 28.6.2000 before the Hon'ble Supreme Court in Civil Appeal Nos. 5890-5931 of 2000. The Hon'ble Supreme Court disposed of the appeals in terms of the following order on 16-10-2000 :- "Special leave granted. After hearing the learned counsel for the parties, we dispose of these appeals in terms of the interim order dated 21st August, 2000 passed by this Court. The operative portion of the said order is as follows :- ....
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....r this conspiracy and this fraud. (iv) The Committee may take the assistance of the officials of Department of Banking Supervision, Reserve Bank of India or any other officials of public sector banks for investigation purposes." Methodology followed by the Committee: 5.3 The Committee adopted the following methodology:- "(i) The Committee constituted five inspection teams for carrying out the scrutiny of the records of the petitioners and the two banks. Each team consisted of three officers - one each from the Department of Banking Supervision and the Urban Banks Department of the Ahmedabad Regional Office of Reserve Bank of India and one officer from the respective banks. While four teams scrutinized the records of the petitioners which had kept the deposits with Bank of Baroda, one of the teams scrutinized the records of the petitioners which had kept the deposits with the Indian Bank. (ii) A "Checklist" was prepared to serve as a guideline for carrying out the scrutiny by the inspection officers. (iii) Before the commencement of the scrutiny by the inspecting officers the members of the Committee briefed them as to the aspects to be look....
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....ions in para 7 of Chapter 13 of the report :- "(a) Repayment of deposits The contention of the petitioner depositors has been that they have not availed of advance against the security of the deposits. The discharged original deposit receipts are with the banks. As the deposit receipts were not directly handed over to the petitioner depositors against their acknowledgments when the deposits were placed with the branches it is possible that the middlemen/brokers themselves have pledged these receipts as security for the advances. The signatures discharging the deposit receipts for the purpose of availing of loans were not verified by the branch officials to ensure that the signatures were those of the authorized signatories of the petitioner depositors. The loan amounts were not credited to the accounts of the petitioner depositors. The loans were disbursed through issue of cheques/demand drafts in favour of third parties like S.P. Investment. The drawals from the accounts of third parties like S.P. Investment were invariably in cash and it has not been possible to identify the beneficiaries who have withdrawn the amounts. The contention of Bank of Baroda has been that it i....
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....ch an exercise would obviously take a long time. The role of the bank officials in perpetration of the fraud has been quite significant. It is not merely procedure lapses but grave irregularities which have necessitated major penalty proceedings against them. The banks, therefore, cannot absolve themselves of their liability. It is also observed that in the case of some of the co-operative societies/ co-operative banks as sizeable portion of their funds are blocked in deposits with the two banks they are finding it difficult to meet the claims of depositors who had placed the funds with them in deposits. Taking all the aforesaid aspects into account two members of the Committee (the Chairman, and the Regional Director, RBI, Ahmedabad office) are of the opinion that the banks should refund the disputed amounts of deposits to the petitioner depositors. The other two members of the Committee (Shri RV Iyer, Bank of Baroda and Shri S. Arunachalam, Indian Bank) are of the view that return of the deposits may amount to double payments to the petitioner depositors and that they would go by the official views of their respective banks." [Court's Note : In effect, th....
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....rores and interest thereon at savings bank rate Rs. 29.02 lakh. An undisputed amount of Rs. 16.20 lakh has been remitted to the Income Tax Authority. The disputed amount of deposits aggregate Rs. 20.00 crores. In the case of Indian bank, the undisputed and disputed amounts of deposits aggregate Rs. 72.85 lakh and Rs. 4.45 crores respectively. The bank has stated that it has deposited the undisputed amount of Rs. 72.85 lakh with interest of Rs. 1.66 lakh in the Court." The refund of the deposits to the petitioner depositors by the banks should, however, be subject to certain terms and conditions which are as under :- (a) The co-operative societies/co-operative banks should execute necessary documents as per the banks' procedure. (b) the banks could take indemnity bonds from persons acceptable to them apart from the co-operative societies/ co-operative banks before effecting the refund of the disputed amount of deposits. (c) In case at a later date for any reason the amounts are required to be refunded to the banks by the co-operative societies/co-operative banks they will have to pay interest at the prime lending rates of the bank concerned compound....
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....ent of such money claims. (iii) The petitioner-depositors had pledged the monies in the fixed deposit receipts to the appellant banks for taking loans/overdraft facilities and had also executed necessary documents in favour of the appellant banks for that purpose. The co-operative banks/co-operative societies are denying any such loans/overdrafts having been taken by them and they are also denying that any documents were executed or any resolutions were passed for taking overdrafts against the fixed deposit receipts. Such disputed questions of fact can only be tried in regular civil trials where a person is required to adduce oral as well as documentary evidence and such evidence will be tested by cross-examination so as to bring out the real truth. The petitioners cannot, therefore, be allowed to obtain money decrees for the fixed deposit receipt amounts without going through any such trial. All the petitioners have equally efficacious remedy of filing civil suits. Strong reliance is placed on the decisions of the Apex Court in AIR 1985 SC 1265, and 1997(1) SCC 156 in support of the contentions that the High Court should not entertain petitions under Article 226 ....
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.... of the learned Single Judge requiring the Committee to investigate and report as to what the disputed amount is and who is entitled to receive it, indicate that the matter is still at large and this Court is not bound to give any direction to the appellant banks to make payments to the petitioners as per the report of the Committee, more particularly when the appellant banks are entitled to challenge the entire judgment of the learned Single Judge including the directions for constituting a Committee to go into the highly disputed questions of fact. 6.4 Sections 35A and 36(d)(iv) of the Banking Regulations Act, 1949 empower the Reserve Bank of India merely to give directions in policy matters and not to adjudicate the disputed questions about liability of the bank to make payments of fixed deposit receipts. 6.5 The entire matter is still pending with the CBI which is investigating into all the allegations. The Committee has also observed that it was not possible to state whether the fixed deposit receipts lying with the petitioners were originals or photostat copies. Hence, the petitioners' case that they had not taken any amounts by pledging the fixed deposi....
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....ected by the learned Single Judge. It is further submitted that the appellant banks have participated in the inquiry before the Committee and their representatives also participated as members of the Committee and, therefore also, it is not open to them to challenge the constitution of the Committee. Strong reliance is placed on the decision in 2000 (4) SCC 198 to contend that the appellant banks are estopped from challenging constitution of the Committee after having participated in the proceedings before the Committee. 7.2 In view of the fact that criminal investigation has been going on for a number of years and, therefore, the criminal case will also take substantial time and that similarly civil suits will also take a long time, the learned Judge was justified in giving the impugned directions. A reference is also made to the decisions of the Apex Court appointing fact finding committees while deciding the controversies raised in petitions under Article 226 of the Constitution. Reliance is also placed on the decisions in 1973 GLR 261, 23(1) GLR 340, AIR 1977 SC 1132 and AIR 1961 SC 1506 and AIR 1991 SC 247. 7.3 The Committee has examined the facts of each individual....
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....he appellant-Banks before the Committee appointed pursuant to the orders of this Court and also to the action taken by them as recorded by the Committee on the basis of the documents produced before it, which throws a flood of light on the controversies between the parties and which action substantially takes out the "disputed" part out of the "disputed questions of fact". 8.1 The stand of Bank of Baroda in the written submissions was that Bank of Baroda had followed the procedure for receiving monies of the co-operative banks for investment in fixed deposit receipts, there was no reason for the bank to be suspicious; the accounts were opened in accordance with the prescribed procedure and the advances were granted against the fixed deposit receipts in accordance with the bank's procedure. According to the written submissions of Bank of Baroda, the issue to be considered was whether the authorizations purportedly furnished by the co-operative banks were genuine or not. In so far as Bank of Baroda is concerned, such authorizations were in fact signed by the persons whose names appeared on the same and, therefore, it was perfectly normal for the bank to treat such authorizatio....
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.... 4. The details of such violations are enumerated hereunder:- As admitted by Mr. N.D. Shah in his letter dated 24.2.98, he used the services of unauthorised/unconnected persons for putting through the transactions of FDRs and loans/DD there against of all the Cooperative Societies/ Cooperative Banks in Udhna Branch rather than dealing directly with the depositors/loanees. The other branch managers have also admitted to having used the services of middlemen in Fixed Deposits/Loans at their branches. The services of unauthorised/unconnected persons were used for the following :- For acceptance of account opening forms of Coop. Societies/Cooperative Banks along with credential papers, resolutions, etc. for opening of their account without ascertaining the reasons for keeping deposits at their branches which is around 200 kms away from the place of its operation and also without verifying genuineness of the documents, etc. submitted for opening of the account. They also failed to verify the genuineness of the signatures of authorized signatories, the credential papers, photographs, etc. submitted by the unauthorised/unconnected persons with the branches of ....
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....aggregating to Rs. 1 crore on 9.1.98 drawn on Bank of Baroda, Service Branch, Surat from The Dakor Nagarik Sahakari Bank Ltd., for keeping the same in Fixed Deposit, for 366 days. The said Demand Drafts were received by Shri PV Sopariwala, the then Sr. Br. Manager, Navyug College Branch, Surat, from one Smt Jyotiben Karani, who is a resident of White House, Gopipura, Hanuman Char Rasta, Surat. 4. Mr. PV Sopariwala, had accepted the above Demand Drafts for issuance of fixed deposit without observing Bank's guidelines/instructions for opening of the new account and for preparing the FDR without obtaining prior permission of the Regional Authority. 5. While preparing the FDR No. 529140 dated 10.1.98 for Rs. 1 crore, no account opening form and other credential papers of the fixed depositor were obtained by Navyug College Branch. But on 13.1.98, after allegedly obtaining discharge on the back of the FDR and also a request letter for prepayment, the proceeds were paid by bankers cheque dated 13.1.98 for Rs. 1.00 crore favouring The Dakor Nagarik Sahakari Bank Ltd., Dakor. 6. On verification of the discharge on the back of the FDR prepared by Bank of Baroda....
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.... --------------------------------------------------------------- Total Rs. 1,00,04,900.00 --------------------------------------------------------------- 11. The Gujarat Industrial Cooperative Bank Ltd., Surat, wherein the above mentioned beneficiaries of the cheques (except Shivam Investment) maintain accounts, advised us of the addresses of the beneficiaries as under :- Name of the beneficiary Address M/s RK Velvets 11/322, Kacharani Pole Nanavat, Surat M/s Goodluck B/1799, Gopipura Enterprises Kayastha Mahollo, Surat M/s S.P. Investment Gopipura, Sanghadia, Wad, Surat. 12. It was further advised that accounts of M/s RK Velvets, M/s Good Luck Enterprises and M/s S.P. Investments have since been closed with the Gujarat Industrial Cooperative Bank Ltd., Surat. The address of Mr. HR Patel has not been provided. 13. M/s Shivam Investments maintains Current Account with our Bank of Baroda, Parle Point Branch, Surat and its address as per Branch records is 2/287, Main Road, Sagrampura, Surat. Shri Samir Premchand Parikh @ Shah is the proprietor of this firm and also of M/s S.P. Investments. It is suspected that Smt Jyotiben Karani and Shri Samir Pari....
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....ost 200 kms. away from the branches in Surat without ascertaining and recording reasons for opening such account/s at their branches which are not situated in the area of operations of the depositors for placing deposits and availing loans/overdrafts, more so when branches of Bank of Baroda are situated and operating at the places where the depositors are having their offices. 2. For the purpose of procuring deposits from the aforesaid depositors, they engaged mediators/middlemen/brokers which is contrary to the norms and instructions of the bank. Further, they involved a channel of middlemen/brokers right from the stage of opening of the accounts by accepting from them signed account opening forms, credential papers like resolutions, bye-laws, list of members of Managing Committee, Certificate of Incorporation, Photographs of depositors etc. without ascertaining the credibility of such middlemen/brokers and genuineness of the documents submitted by them for opening of the accounts. 3. They also did not get all such documents and signatures of authorized signatories cross-checked with the branches at the centres where the depositors are having their office/s and i....
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....issued by Reserve Bank of India is not obtained. 11. ... ... ... ... ... 12. ... ... ... ... ... 13. They did not sign Specimen Signature Cards/Account Opening Forms of Fixed Deposit A/cs. & Current A/cs. as Br. Manager. 14. They directed the branch officials to issue certificates giving details of FDRs like FDR No. , Period of Deposit, Rate of Interest, Amount of Deposit and its maturity value without obtaining specific request letter from the depositors and ascertaining reasons for asking such certificate when the bank had issued Fixed Deposit Receipts to the depositors. It is reported that such certificates were issued at the instance of the middlemen/brokers who had canvassed deposits from the Cooperative Societies/ Cooperative Banks by offering incentive/commissions to them on the condition that the original FDRs will not be delivered to them and instead Maturity Value Certificates will be issued to them. The depositors were also explained that if the original FDRs were delivered to them, they might ask for prepayment and such unauthorized commission/incentive was paid only if the deposit is allowed to continue till its full maturity. Under the guise....
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....aving personally gone for said verification. To that extent the bank officials had taken precautions to ascertain the identity of the signatories on the documents." The aforesaid stand would thus make it clear that the officials of the Indian Bank were also sailing in the same boat as the officials of Bank of Baroda and the discussion would, therefore, be common as regards the appeals of both the Banks. As far as the case of the Indian Bank vis-a-vis Dabhoi City Cooperative Credit Society Ltd. and Dabhoi Nagrik Sahakari Bank Ltd. against whose officials (against the office bearers of the original petitioners in Special Civil Application Nos. 3200, 3203 and 3205 of 1998) the Indian Bank has lodged an FIR with Mahidharpura Police Station on 31.3.1998 is concerned, we will be passing separate orders in view of the peculiar facts and circumstances relating to these two parties. In Chapter 12 of the report, the Committee has referred to the internal investigation made by the Indian Bank, which has brought out the following major irregularities as reported by the Investigating team of the Indian Bank:- (a) Failure to ensure proper safe custody of numbered items, i.e.....
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....e of loans sanctioned against the deposits of cooperatives, as regards, the bank's pay orders issued to the beneficiary "S.P. Investment", there is no way of finding how they have been handed over to the cooperatives. (ii) Shri R.L. Raval, Sr. Manager of the Surat branch of the Indian Bank alone had brought the account opening forms purported to have been obtained from the concerned cooperative societies/ cooperative banks for placement of deposits. In the absence of photographs of the office bearers, account opening forms and signature verification in majority of cases were authenticated only by Shri R.L. Raval. It was Shri R.L. Raval who delivered the completed loan documents formats purported to have been obtained from the cooperatives to the loan desk for preparation of vouchers. It is unusual for a depositor to raise a loan the very next day at a higher rate of interest than the interest receivable for his deposits and that too when the loans are raised against the deposits of cooperative societies/cooperative banks. It would have been proper if an account payee BPO in favour of the concerned cooperative had been issued by the Indian Bank, instead the BPO is is....
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....ioners/parties and the rate of interest. The Committee was thus constituted to determine the civil liability of the appellant-banks and not for determining the criminal liability of any party or any individual. 12. As regards the controversy whether, in view of the orders of the Hon'ble Supreme Court, it is open to the appellant banks to challenge the constitution of the Committee - 12.1 In our view, the order dated 16.10.2000 of the Hon'ble Supreme Court disposing of the appeals (and not mere Special Leave Petitions), confirming the directions given by the learned Single Judge for constitution of the Committee for determining the disputed amounts and who are entitled to receive them were required to be investigated and reported by the Committee, has to be treated as a direction of the Hon'ble Supreme Court to constitute the Committee. Hence, the directions of the learned Single Judge got merged in the final order dated 16.10.2000 of the Hon'ble Supreme Court. In our view, the Apex Court has not only permitted the direction regarding constitution of the Committee to operate, but has in positive terms directed that what the disputed amount is and who is entitle....
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....counsel for the appellant-banks deserves to be rejected. However, since the learned counsel for the appellant-banks have raised several contentions having a bearing on the preliminary issue and have also cited various decisions, we proceed to deal with the same. 13. The rule that the High Court will not entertain disputed questions of fact in a petition under Article 226 of the Constitution and the rule that the Court will not exercise its extraordinary jurisdiction under Article 226 of the Constitution for adjudication of a money claim are self-imposed rules. There is no absolute prohibition that the Court can never entertain a writ petition when an alternative remedy is available. In each case the Court has to consider whether alternative remedy would be an equally efficacious remedy or not. The alternative remedy of civil suit is also a remedy where ultimately the Court goes into disputed questions of fact and arrives at conclusions on the basis of the evidence on record. The factual controversies in this group of matters revolves around the implementation or otherwise of the banking practices relating to opening of accounts and compliance with the banking norms before sancti....
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....ds of the appellant-banks as well as the petitioners (four teams scrutinized the records pertaining to cases against Bank of Baroda, one pertaining to Indian Bank). Each inspection team consisted of three officers :- (i) one officer from the Department of Banking Supervision of RBI (Ahmedabad Regional Office) (ii) one officer from the Department of Urban Banks of RBI (Ahmedabad Regional Office) (iii) one officer from the concerned appellant-bank Thus the concerned appellant-bank had its representative on each inspection team. The three members of each inspection team had the opportunity to discuss and interact with each other before they submitted their observations to the Committee. (b) Before commencement of the scrutiny by the inspection teams, the members of the Committee appointed by this Court briefed the inspection teams as to the aspects to be looked into and the manner of carrying out the scrutiny of the records. (c) The inspection teams, each having an officer from the respective appellant-Banks also made a scrutiny of the records lying with the CBI. (d) The Committee received written submissions with document....
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....ghly placed banking experts point to the inescapable conclusion that the fraud in question would not and could not have taken place but for the active and direct connivance of the officers of the two appellant banks which are nationalized banks and are State within the meaning of Article 12 of the Constitution and the appellant-banks cannot, therefore, be absolved from their civil liability to repay the amounts received by them for investment in fixed deposit receipts for one year when the appellant-banks' officers, soon (next day or within a week) after receiving the amounts for investment in fixed deposit receipts for one year, granted advances in favour of third parties - in several cases, the same party "S.P. Investments" without ensuring that the alleged request and the alleged authorization for granting such advances/overdrafts against the fixed deposit receipts came from authorised representatives of the co-operative banks/societies which were governed by their own rules and regulations having statutory force. 15. In view of the above discussion, the directions given by the learned Single Judge are sustainable even without any reference to the provisions of Section 35....
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....ndents were legal heirs of persons whose death had been caused by electrocution. They filed writ petitions under Article 226 of the Constitution claiming compensation, contending that electrocution had resulted from improper maintenance of electric wires or equipment by the Electricity Board. The High Court appointed an arbitrator to decide the question of compensation and pending the arbitration proceedings, interim compensation of Rs. 30,000/- was awarded to each respondent. The arbitrator gave his awards, which were made rule of the Court after objections were heard and the High Court examined the evidence recorded by the arbitrator. It was contended in appeal before the Hon'ble Supreme Court that the High Court had strayed beyond its authority and that by referring the matter to arbitrator, the High Court had created a new jurisdiction to deal with the alleged negligence of the appellant Board. It was contended that creation of such forum was a legislative act and was not within the authority of the High Court. However, the Apex Court did not accept such a submission and did not accept that there was any absolute embargo on the power of the High Court to entertain disput....
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....equitable situation demands after setting right the legal formulations not to take it to the logical end, the Supreme Court would be failing in its duty if it does not notice equitable considerations and mould the final order. In exercise of the extraordinary jurisdiction under Article 136 the discretion should be so exercised by the Court that justice may be rendered to both the parties." After reiterating the above observations, the Apex Court, even while allowing the appeals and dismissing the writ petitions, restrained the appellant Board from recovering any amount from any of the respondents which was paid to them in terms of the impugned judgments of the High Court. From the aforesaid decision, therefore, it is clear that the limitations imposed upon the power conferred upon the High Courts under Article 226 of the Constitution are self-imposed guidelines. Those guidelines cannot be mandatory in all circumstances. Moreover, the aforesaid decision will not apply in the facts of the present case for two reasons. The direction given by the learned Single Judge that the findings of the Committee shall be binding to both the parties and shall be implemented forthwith was sta....
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.... v. M.V. Vyavsaya & Co. (Supra). 16.4 As against the above decisions relied upon on behalf of the appellant-banks, strong reliance is placed on behalf of co-operative banks/societies on the decision of the Apex Court in M/s Hyderabad Commercials v. Indian Bank, AIR 1991 SC 247 wherein the Indian Bank (one of the appellants herein) transferred approx. Rs. 13 lakhs from the account of one of its customers to another unauthorizedly and took up the plea subsequently that the amount was transferred on oral instructions of the customer. The Apex Court not only held that the plea of oral instructions did not inspire any credence, but also made the following observations :- "The Bank's conduct is reprehensible. We are constrained to observe that such functioning of a Nationalized Bank is detrimental to public interest and if it follows the practice of transferring money of its customers to some other persons account on oral authority, people will loose faith in the credibility of Bank. Since the basic facts regardings the unauthorized transfer of the disputed amount from the appellant's account as well as the Bank's liability was admitted, there was no....
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....eal directly with the petitioner depositors but accepted the services of middlemen/brokers for procuring the deposits from them. This is contrary to the instructions of the banks. (b) The middlemen/brokers brought the account opening forms, specimen signature cards, resolutions and demand drafts for placing the deposits. (c) Introduction for opening of the accounts was not obtained and in some cases the signatures on the specimen signature cards were notarized before the notary public. Photographs of all the authorized officials of the cooperative societies/ cooperative banks were not obtained. This is not in conformity with the procedure to be followed for opening of deposit accounts. (d) The names and signatures of the office-bearers/directors of the cooperative societies/cooperative banks were missing from the copies of byelaws indicating thereby that original byelaws or certified copies thereof were not obtained by the branch officials. (e) The deposit receipts were not directly given to the petitioner depositors against their acknowledgment. They were given to the middlemen/brokers who had brought the documents for keeping the deposits. No r....
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....ve banks have been opened for siphoning off the funds. The petitioner depositors denied having opened such accounts during their submissions before the Committee. The documents such as copies of resolutions passed for placing the deposits, specimen signatures recorded differ from those at the two bank's branches when compared with those on the records of the petitioner depositors. The documents have been fabricated with a view to perpetrating the fraud. The fabrication/ replacement of the documents could be either by the middlemen/brokers who had handled them or by the branch officials themselves. (p) The fraud could be perpetrated by the middlemen/brokers on account of serious lapses on the part of the branch officials of the two banks. It was nor merely procedural lapses but grave irregularities knowingly committed by them that enabled the middlemen/brokers to siphon off large amount of bank funds." 19. The Committee noted the following acts of omissions and commissions on the part of the co-operative societies/co-operative banks :- "(a) The cooperative societies/cooperative banks are required to obtain prior permission of the Registrar of Cooperative Soc....
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....ent with xerox copies of original FDRs or certificates issued by the two banks giving details of the deposits received from them. The petitioner depositors have mentioned that they were not given original FDR receipts so that the deposits will not be prematurely encashed or loans availed of against them. As incentives were paid on the deposits, it would be a loss to the middlemen/brokers, unless the deposits are kept up to their due dates. (i) Commission/incentive varying from 3.8 to 25 per cent was received by the petitioner depositors. The cooperative societies/cooperative banks could be aware of the fact that nationalized banks do not pay such commission. They should have been, therefore, put on guard. According to the cooperative societies/cooperative banks they were advised by the intermediaries/banks that there are large industrial units in Surat which are in need of bank finance. The funds placed by them in deposits will be utilized by the two banks for lending to these units in Surat and the commission/incentives will be paid out of the interest on the advances granted to the units. (j) The commission/incentive was received by the cooperative societies/cooperative ....
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....in a week thereafter, advances were made against such fixed deposit receipts, not only the hurry with which the loan applications were placed before the officials of the appellant banks but also the fact that the pay orders for the loan amounts were "asked for" in favour of a third party - in most cases the same party called "S.P. Investments" was sufficient to arouse the suspicion of even a novice or a layman but senior officers of the appellant banks hurriedly sanctioned and disbursed the loans against security of the fixed deposit receipts of cooperative societies/cooperative banks and, thereafter, liquidated those deposit receipts on ground of non-payment of loans. When Bank of Baroda itself has stated before the Committee that eight of its officers including Branch Managers of six branches involved at Surat were suspended and were served with the chargesheet (the allegations in which are set out in para 8.3 hereinabove), it is not open to Bank of Baroda to contend that its officers did not play any role in the fraud in question. The question involved in these petitions is not whether "X', "Y" and/or "Z" officers of Bank of Baroda and/or Indian Bank are guilty of the fraud ....
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....e depositing moneys as well as the applications for advances, resolutions for premature encashment and other documents for loans were signed/passed by authorised office bearers of the co-operative societies/co-operative banks. The findings recorded by the Committee in Chapter 7 in Chapter 13 of its report as set out in paragraph 5.5 of this judgment fully justify the claim of the cooperative societies/ cooperative banks for a direction that the amounts of fixed deposit receipts be refunded to them. 23. At this stage, we may only state that the defence urged by the Indian Bank is regarding the claims of the Dabhoi Nagrik Sahakari Bank Ltd. and the Dabhoi City Credit Cooperative Society Ltd.. It appears that there was a controversy about the loss of seven blank fixed deposit receipts from the custody of the officials of the Indian Bank. The Indian Bank has filed a complaint against the office bearers of the Dabhoi City Cooperative Credit Society Ltd. and the Dabhoi Nagrik Sahakari Bank Ltd.. We will be passing separate orders in respect of the said two parties. As regards the other parties, the facts are similar to the facts in the matters of Bank of Baroda. In paragraph 9 we have....
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....ommitted by the bank employee in the course of his employment, and, therefore, if the employee's act is not fraudulent but found to be negligent or wrongful in any other matter, even then the bank will be vicariously liable. 24.2 In M/s. Dedha & Co. v. M/s. Paulson Medical Stores, AIR 1988 KER 233, the Kerala High Court held that both the plaintiff and the defendant were joint tortfeasors and, therefore, the suit for indemnity against the defendant was held to be not maintainable. In the present case, the petitioners are co-operative banks/co-operative societies and not their office bearers against whom the appellant banks have made vague allegations. When the appellant banks themselves have filed complaints against their own officers and have also suspended them and issued chargesheet in departmental inquiries, stating that those officers acted fraudulently, the appellant Banks cannot be exonerated of their vicarious liability by making allegations against office bearers of co-operative banks or societies. 24.3 Mr. Darshan M Parikh, learned counsel for the appellant banks has placed strong reliance on the decision of the Apex Court in Immani Apa Rao v. Gollapalli Ramalin....
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....pellant banks as well as the original petitioners i.e. the co-operative societies and co-operative banks, we are of the view that the parties are required to be directed to implement the report in its entirety in so far as the same touches the civil rights and liabilities of the parties in respect of the fixed deposit receipt amounts which are the subject matter of this group of matters. 27.(A) We direct Bank of Baroda to act in accordance with the recommendations contained in paragraphs 7(a), (b) and (c) in Chapter 13 of the report dated 20.3.2001 given by the Committee headed by Mr. JR Prabhu, appointed pursuant to the judgment dated 2.5.2000 and interim orders dated 28.6.2000 of this Court as confirmed by the order dated 16.10.2000 of the Hon'ble Supreme Court, and to pay the parties (original petitioners) disputed amounts as set out in Annexure 3 Part A to the aforesaid report by October 31, 2003, subject to compliance with the terms and conditions stipulated in para 7(a) of the aforesaid report. (B) We direct the Indian Bank to pay Roshan Cooperative Credit Society Ltd., the Godhra Nagrik Cooperative Credit Society Ltd. and Shree Sardar Patel Cooperative Credit Socie....