2008 (5) TMI 737 - SC - Indian Laws

Summary

Issues Involved:
1. Power of judicial review by a Superior Court.
2. Maintainability of writ petitions involving private disputes.
3. Serious disputed questions of fact in writ petitions.
4. Fraud allegations involving bank officers and commission agents.
5. Directions issued by the High Court for payment of disputed amounts.
6. Role and findings of the Committee constituted by the High Court.
7. Constructive liability of banks for acts of their employees.
8. Public interest litigation versus private law remedies.
9. Relief to cooperative societies not involved in the fraud.
10. Directions for handling undisputed amounts and future proceedings.

Detailed Analysis:

1. Power of Judicial Review by a Superior Court:
The judgment discusses the extent of judicial review power by a Superior Court, particularly in cases involving alleged fraud and disputed facts. The court emphasizes that judicial review is limited and should be exercised only when the state's actions are found to be unfair, unreasonable, or arbitrary.

2. Maintainability of Writ Petitions Involving Private Disputes:
The court examined whether writ petitions are maintainable in private disputes, especially those arising out of contracts. It was argued that writ petitions should not be entertained in private disputes, but the court acknowledged that in certain cases involving public law elements, writ petitions could be justified.

3. Serious Disputed Questions of Fact in Writ Petitions:
The High Court initially held that serious disputed questions of fact precluded granting relief in writ petitions. Despite this, the court directed the constitution of a Committee to investigate the matter, which was contested on the grounds that the High Court should not have entertained the writ petitions due to the complex factual disputes.

4. Fraud Allegations Involving Bank Officers and Commission Agents:
The case involved allegations of fraud where bank officers and commission agents were implicated. The court noted that the Central Bureau of Investigation (CBI) had filed a charge-sheet against both bank officers and commission agents, indicating a conspiracy to defraud the banks.

5. Directions Issued by the High Court for Payment of Disputed Amounts:
The High Court directed the banks to pay the amounts under the Fixed Deposit Receipts (FDRs) to the depositors, subject to the findings of the Committee. This direction was challenged on the basis that the Committee had not conclusively resolved the issue of liability.

6. Role and Findings of the Committee Constituted by the High Court:
The Committee, chaired by the Deputy Governor of the Reserve Bank of India, was tasked with investigating the matter. The Committee's report indicated that bank officers were primarily responsible for the fraud. However, there was no unanimity on whether the banks should refund the disputed amounts, leading to differing opinions among Committee members.

7. Constructive Liability of Banks for Acts of Their Employees:
The court discussed the concept of constructive liability, where banks could be held liable for the fraudulent acts of their employees. The judgment referenced the "Alter Ego" approach and the "Attribution Approach" in corporate liability to illustrate how companies can be held accountable for their employees' actions.

8. Public Interest Litigation Versus Private Law Remedies:
The judgment explored whether the High Court could convert a private dispute into a public interest litigation (PIL). It was argued that if a case involves public law elements affecting a large number of people, the court could treat it as a PIL. However, the court concluded that this case did not qualify as a PIL and should not have been treated as such.

9. Relief to Cooperative Societies Not Involved in the Fraud:
The court acknowledged that cooperative societies not involved in the fraud should not suffer due to the actions of others. It directed the banks to ascertain which societies were not implicated in the scam and release the amounts due to them, subject to necessary precautions.

10. Directions for Handling Undisputed Amounts and Future Proceedings:
The court provided specific directions for handling undisputed amounts and future proceedings. It instructed the banks to release undisputed amounts with interest and to issue fresh FDRs for the amounts determined to be genuine. The court also urged the criminal courts to expedite the pending cases.

Conclusion:
The Supreme Court allowed the appeals, setting aside the High Court's directions for payment of disputed amounts. It emphasized the limited scope of judicial review in such cases and directed a pragmatic approach to ensure that cooperative societies not involved in the fraud receive their due amounts. The judgment underscores the importance of distinguishing between public and private law domains and the need for careful judicial intervention in complex fraud cases.