TaxTMI 
TaxTMI 
2008 (5) TMI 737
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.... some so-called Commission Agents of the Banks on payment of huge commission which is ordinarily not allowed by the Nationalized Banks. 3. Applications for grant of loans by various persons were filed before the prescribed authorities of the banks on the basis of the said FDRs. Allegedly a large number of officers of the banks were involved in a scam whereby unofficial investments of the said amount were being made. 4. As and when the FDRs matured, the investors requested the Banks for their encashment. The banks refused to accede thereto stating that the amount under the FDRs had already been paid by way of loans and, thus, no further amount was payable. It was contended that a fraud on the banks has been practiced to which the depositors and the officers of the banks were parties. 5. Writ petitions were filed. A learned Single Judge of the High Court opined that serious disputed questions of fact being involved in the said writ petitions, no relief can be granted to the writ petitioners. 6. Despite the same, the learned single judge relying on the provisions contained in Section 35A of the Banking Regulations Act, 1949 directed constitution of a Committee under the Ch....
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....er dated 9th May, 2005, upon hearing the counsel for the parties, `Leave' was granted, as a result whereof all the contentions of the parties are now open. 10. Mr. P.P. Rao, learned Senior Counsel appearing on behalf of Bank of Baroda would submit: (i) In a writ petition involving private dispute, no direction for payment of money in favour of the writ petitioners should have been issued by the High Court; (ii) As the writ petitions involved serious disputed questions of fact, the High Court should not have entertained the same; (iii) Having regard to the fact that the Central Bureau of Investigation has since submitted a charge-sheet wherein not only the officers of the banks but also the commission agents have been found to be guilty of an offence of conspiracy in committing fraud on the bank, the judgment and direction of the High Court should be set aside. Mr. Sundaram, learned Senior Counsel, appearing on behalf of the respondents, on the other hand, would contend: (a) Although the writ petitions were filed for enforcement of a contract, as the same involved public law character, the writ petitions were maintainable. (b) A....
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.... The core question which arises for consideration in the writ petitions was as to whether, keeping in view the apprehension in the mind of the Bank that it has been subjected to fraud by its own officers as also the apprehension in their mind that the writ petitioners or their agents might have conspired with the offices of the Banks, was it unfair and unreasonable in its decision to refuse to make payment? The answer to that question prima facie must be rendered in the negative. If, however, it is found as of fact that the writ petitioners-respondents were not parties to the fraud, whether even in a lis involving private law domain, namely, contract qua contract, as a trustee of the investors' money, they may be held to be liable to refund the amount, is the question?. Indisputably, whether as a public sector undertakings or otherwise the banks cannot refuse to accede to the just demand of the investors to pay any amount lawfully due to them inter alia on the premise that their officers are guilty of commission of any fraud. It is one thing to say that fraud has been committed by their officers to cause wrongful loss to the bank but it is another thing to say that the ba....
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....sume that the Banks are liable to pay the amount under the contract for which the FDRs were issued. 11. The main question, however, would still remain as to whether in a case of this nature (which would in turn depend on the finding of fact) as to whether the petitioners themselves or their agents being party to the fraud, any direction in the public law domain can be issued. The larger question would be as to whether the writ petitions having not been found to be maintainable being purely of private law character, the High Court could treat it to be one involving a public law domain and could still have private law remedy available to the writ petitioners? A writ petition indisputably would be maintainable even in relation to a matter arising out of contract qua contract. 12. As has been submitted by Mr. Sundaram that some cases may start on a private interest but if the court finds involvement of a public law element therein concerning a large number of people, it may proceed on the basis as if it was a public interest litigation and appoint a Committee and then grant relief in favour of the writ petitioners. Whether such an extraordinary case has been made out herein is....
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.... learned single judge issued the following directions: I. A Committee is hereby constituted as under: (i) The Deputy Governor of the Reserve Bank of India himself or his nominee as the Chairman of the Committee. (ii) One member to be nominated by the Deputy Governor of the Reserve Bank of India who shall be the officer of the highest rank in the Reserve Bank of India but subordinate to Dy. Governor. (iii) One member from the Bank of Baroda/Indian Bank to be appointed by the Board 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 de....
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.... finding could be arrived at having regard to the modus operandi of the persons involved. 14. The private dispute between the parties were, thus, sought to be converted into a public interest litigation for the purpose of making an enquiry into the affairs of the bank by a Committee. The Committee was consisted of the following members: As per the judgment of the learned single judge, the Committee consisted of three members. When the Committee dealt with the cases of Bank of Baroda, only the representative of Bank of Baroda acted as a member and when the Committee dealt with the cases of Indian Bank, only the representative of the Indian Bank acted in the said capacity. The other members of the Committee were Shri JR Prabhu, Banking Ombudsman, Mumbai and Mr. VS Das, Regional Director, RBI, Ahmedabad. 15. We have been taken through the report submitted by the Committee. The Committee did a yeoman job. It went into various aspects of the matter. It tried to cover as much ground as possible. It noticed the facts leading to setting up of the Committee. It considered the written submissions as also the oral submissions of the appellant and the submissions made by the respec....
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....ity. The disputed amount of deposits aggregate Rs. 20.00 crore. In the case of Indian Bank, the undisputed and disputed amounts of deposits aggregate Rs. 72.85 lakh and Rs. 4.45 crore 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 cooperative societies/cooperative 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 cooperative societies/cooperative 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 cooperative societies/cooperative banks they will have to pay interest at the prime lending rates of the bank concerned compounded at half yearly rest from the date of refund of the deposits by the banks till the date of repayment by the cooperative societies/ cooperative banks to the tw....
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....e Constitution of India. Indisputably, exercise of jurisdiction by the High Court is permissible in a case where action of the State is found to be unfair, unreasonable or arbitrary. The question which should have been posed by the High Court was as to whether the action of the bank was so arbitrary so as to invoke the public law jurisdiction. If the answer to the said question was to be in the negative, the High Court should have refused to exercise its jurisdiction. A fraud has been practiced on the banks. Primary accused may be the bank officers but a conspiracy with them by the outsiders has also been alleged. The original FDRs only in some cases are available; in most of the cases they are not. Even the Committee could not decide for as to which one was the original FDR and which was not. It could not distinguish between an original FDR and the Xerox copy thereof. Opinion of the expert thereon might have been received, but the final verdict thereupon in the cases initiated by the C.B.I. is still awaited. 17. The law as regards application of the power of judicial review, inter alia, in the contractual filed stands covered by a large number of decisions. (See LIC of In....
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....ary relationship is suffused and intermixed with negotiating and mediating processes at every point. The judge is the dominant figure in organizing and guiding the case, and he draws for support not only on the parties and their counsel, but on a wide range of outsiders-masters, experts and oversight personnel." He goes on to give examples of school desegregation, employment discrimination, and prisoners' or inmates' rights cases as also antitrust, securities fraud and other aspects of the conduct of the corporate business, bankruptcy and reorganizations, union governance, consumer fraud, housing discrimination, electoral reapportionment, environmental management- fields that display in varying degrees the features of public law litigation. According to him, The public law litigation model inter-alia has the following features: 7. The judge is not passive, his function limited to analysis and statement of governing legal rules; he is active, with responsibility not only for credible fact evaluation but for organizing and shaping the litigation to ensure a just and viable outcome. 8. The subject matter of the lawsuit is not a dispute between private indi....
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....which they have invested in FDRs on their maturity. Should they wait till the criminal cases are over? Should they be pushed to institute civil suits? They can indisputably be compensated by grant of interest. What, however, happens if in the meanwhile in the absence of the requisite funds being available to them, they find it difficult to run the day-to-day affairs? 20. Answers thereto may be difficult to find but it is not a wholly impossible task. We think that the appellant Bank being a `State' within the meaning of Article 12 of the Constitution of India with the assistance of officer(s) of the Central Bureau of Investigation should make all attempts to ascertain as to which of the cooperative societies/cooperative banks are in no way involved with the scam, and subject to such precautions as may be found necessary to be taken, release the amount in their favour. 21. In any event, the quantum of the amount which all the depositors would have otherwise received, in the event their investment in FDRs is found to be genuine, should be informed thereabout. Once the liability of the bank is determined, the bank may invest the said amount in its own account and issue fresh....