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TMI Blog2003 (10) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fixed deposit receipts were taken for a period of one year or 366 days. The amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or in a manner prejudicial to the interests of the banking Company; (b) the manner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. 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/employees/party responsible for this conspiracy and fraud. V. The findings as may be given by the Committee shall be binding on both the sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 :- 'Learned Solicitor General states that the bank will within one week pay the undisputed amount which is due from it to the depositors and/or deposit the same in Court. What the disputed amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 looked into and the manner of carrying out the scrutiny of the records. (iv) All the petitioners as well as the two banks were asked to make their written submissions to the Committee with all the relevant documents. (v) Besides, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner 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 is possible that the funds might have gone back to the society or they might have remained with the third parties. According to the bank, the societies have tacitly agreed to the FDRs being used in such a manner and the involvement of the co-operative societies/co-operative banks in becoming a party to the fraud or the fraud having taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved 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, the Committee took the aforesaid view by majority of 2:1 that the appellant banks should refund the disputed amounts of deposits to the petitioner-depositors because as per the judgment of the learned Single Judge, the Committee consisted of only three members - the Chairman (Banking Ombudsman Mr. Prabhu), another member appointed by the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The bank has stated that it has deposited the undisputed amount of ₹ 72.85 lakh with interest of ₹ 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 compounded at half yearly rest from the date of refund of the deposits by the banks till the date of repayment by the co-operative societies/co-operative banks to the two banks. 5.7 Recommendations regarding rate of interest: As far as the recommendations for rate of interest on deposits are concerned, the Committee recommended that, for the reasons s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Constitution where disputed questions of fact are involved or where the petitioners have made money claims which can be adjudicated upon in civil suits. 6.2 Having stated in the impugned judgment itself that the petitions raised disputed questions of fact and such disputed questions of fact cannot be gone into in the writ petitions, the learned Single Judge committed a serious erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 deposit receipts to the appellant banks was a matter which was required to be investigated in great details and till then, no direction could have been given by the learned Single Judge to appoint a Committee for going into the question and to direct payment of amounts as may be directed by the Committee. 6.6 The co-operative banks/societies were aware that the deposits made by them with the appellant-banks were going to be pledged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee 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 case and has also considered the stand of the appellant banks, the stand of the officers of the appellant banks, the action taken by Bank of Baroda against its officers and so also the action taken by Indian Bank. From a perusal of Chapter Nos. 9 to 13 in the report, it is clear that fraud was played by the officers of the appellant banks and Bank of Baroda itself has placed 8 officers of 6 of its branches in Surat under suspension on the charge that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roda 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 authorizations to be correct and genuine. Since the said authorizations are being challenged by the petitioner-depositors, it is for them to establish that the said authorizations with necessary resolutions were in fact not sent by them. In any case, Bank of Baroda did not at all dispute that the fixed deposit receipt amounts were received by the Bank from the concerned co-operative banks/societies which are petitioners before this Court. 8.2 When the Committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 our bank at the centres where the Coop Societies/Coop Banks are having their accounts, more so when the deposits were for large amounts and loans were to be granted there against soon after placement of the fixed deposits. They handed over the FDRs to the unauthorised/unconcerned persons without proper authority of the depositors. They accepted the FDRs signed by the depositors on its reverse, executed loan documents, resolutions for availing loan, signed loan cheques, etc. from the unauthorised/ unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count 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 ₹ 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 ₹ 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, Navyug College Branch, it was observed that the signatures were different when compared with the signatures on the specimen signature card of The Dakor Nagarik Sahakari Bank Ltd., Dakor maintained with Bank of Baroda, Dakor Branch wherein the said Sahakari Bank maintains accounts. 7. Thereafter, a Current Account in the name of The Dakor Nagarik Sahakari Bank Ltd. was opened with our Parle Point Branch, Surat on 15.1.98 with initial deposit of ₹ 5,000/- with the introduction of one Mr. Samir Parikh. 8. The Current account opening form was signed by Mr. N.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Parikh are hand in glove and they have masterminded this whole fraud. 14. The total loss to the Bank in the aforesaid fraud would be ₹ 1.00 crore plus interest thereon and as such, you are requested to take up the case for investigation at the earliest and book the culprits. 8.3 Bank of Baroda placed the Branch Managers of all the six branches in question at Surat under suspension by orders passed between 17.3.1998 and 26.10.1998. Thereafter the bank placed under suspension two more officers in November 1998 and January 1999 and instituted major penalty proceedings against all the eight officers for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 in many cases having banking accounts. 4. The resolutions accepted by them for opening of the accounts and also for sanctioning loans were not as per the requirement of the bank and contained direction to issue bankers' cheques in disbursement of loans to a third party viz. M/s S.P. Investment. Disbursement of loans to third parties in case of loan against FDRs is unusual. They did not put themselves to inquiry as to why various depositors located at different places wanted to take loan immediately after placing deposits and also wanted to make investment in only one firm viz. S.P. Investment. 5. The resolutions, in many cases do not specify its Sr. No. , date, amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of such misinformation to the depositors, the original FDRs were retained by the middleman/brokers and by forging signatures of the depositors, loans were raised to give loan to private parties at much higher rate of interest which would cover the interest payable on loan taken against FDR, incentive/brokerage paid to the depositors, commission payable to middlemen/brokers and others and also sharing of profit margin for all those who engineered the fraudulent scheme. 15. The resolutions of various depositors available on the record shows more or less identical drafting of the resolutions, identical mode of signatures, identical type-setting of the rubber-stamps of the depositors and also identical lay-out, printin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. F.D. receipts. (b) Omissions and commissions in opening of Deposit accounts. (i) Permissions from cooperative department is not obtained for opening of accounts in the name of the society. (ii) Proper introduction was not obtained while opening deposit accounts. Signature of authorized signatories was verified by Bank of Baroda, Navyug College branch, Surat. Subsequent confirmation was not obtained from Bank of Baroda. (iii) Passport size photographs of authorized signatories except in the case of The Roshan Cooperative Credit Society Ltd. where photograph of only one signatory was obtained. (c) Omissions and commissions in sanction of loans to cooperative societies against their deposits. (i) Byelaws of the cooperat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issued to a third party in a great hurry by all the three branches of Indian Bank. All the pay orders for the loan amounts are made and issued in favour of S.P. Investments . The Indian Bank has also called for explanations of its officers, such as Senior Manager and Assistant Manager of Surat branch and Senior Manager, Bharuch branch and Branch Manager of Sachin Industrial Park at Surat. Chapter 12 of the Committee report sets out the acts of omissions and commissions for which the Indian Bank itself had called for the explanation of the officers of the above designations. 10. The aforesaid voluminous data which became available to the Committee in the course of investigation and hearing (at both the stages the appellant banks did have an opportunity of explaining their case) do speak volumes about the so-called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 entitled to receive it, may be investigated and reported by the Committee constituted by the learned Single Judge. 12.2 The learned counsel for the appellant banks have submitted that the Apex Court direction that the Letters Patent Appeal be heard early implies that everything was stated at the interlocutory stage and that the Apex Court left the question of legality of constitution of the Committee to be examined by this Court at the final hearing of the appeals. Such interpretation placed by the learned counsel for the appellant banks on the aforesaid order dated 16.10.2000 is misconceived. After making it clear that the direction for constitution of the Committee for determining the disputed amounts and who are entitled to receive them is confirmed, the Apex Court stayed the rest of the High Court order meaning the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sanctioning or granting advances against pledging of fixed deposit receipts and their premature encashment in case of non payment of loans. Even if the parties were to raise this controversy in a civil suit, the Civil Judge having no expertise in the banking field would have to go into such disputed questions of fact and then give his findings whether the accounts were opened in accordance with the banking procedures and practices, whether the advances were given as per the settled banking rules, procedures and practices and so on and so forth and inferences to be drawn in case of non-compliance with such procedures and practices. The learned Single Judge, therefore, rightly took the view that instead of leaving it to the Civil Judge (Senior Division) to undertake this exercise, it would be in the fitness of things if these factual controversies a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 documents from the appellant-banks as well as petitioner depositors and then the Committee gave personal hearing to petitioners, appellant-banks, the officers of the appellant-banks and the middlemen involved in the transactions under scrutiny. III Thus at each stage - formulation of methodology, investigation and hearing - each appellant-bank had through its representative active association, involvement and interaction with the two senior experts from the RBI. Even then, neither the member from Bank of Baroda nor the member from Indian Bank has dissented from the findings given by the Committee about the role played by the officers of the two appellant-banks. The only dissent expressed by the said members representing the two appellant-banks is in respect of the final recommendation whether the two banks should repay the fixed deposit receipt amounts to the co-operative societies/banks. IV The appellant-banks have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 35A and 36(1)(d)(iv) of the Banking Regulations Act, 1949 (hereinafter referred to as the Act ). However, since the learned counsel for the parties have addressed us on this aspect, we have gone through the said provisions and we are in agreement with the learned Single Judge that Section 35A of the Act provides that where the Reserve Bank is satisfied that to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors, it is necessary to issue directions to any banking company in particular, the Reserve Bank may from time to time issue such directions as it deems fit, and the banking company shall be bound to comply with such directions. In the peculiar facts and circumstances of this case, this Court is satisfied that in the interest of the depositors who filed the present group of petitions giving rise to these appeals, it was necessary for the officers appointed by the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 disputed questions of fact. On the contrary, the Hon'ble Supreme Court reiterated the following principle laid down in U.P. State Coop. Land Development Bank Ltd. v. Chandra Bhan Dubey, (1999) 1 SCC 741:- Article 226 of the Constitution also speaks of directions and orders which can be issued to any person or authority ... ... ... The Constitution is not a statute. It is a fountainhead of all the statutes. When the language of Article 226 is clear, we cannot put shackles on the High Courts to limit their jurisdiction by putting an interpretation on the words which would limit their jurisdiction. When any citizen or person is wronged, the High Court will step in to protect him, be that wrong be done by the State, an instrumentality of the State, a company or a cooperative society or association or body of individuals, whether incorporated or not, or even an individual. Right that is infringed may be under Part III of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 stayed by order dated 28.6.2000 of this Court. We have heard the objections lodged by the parties against the recommendation made by the Committee. Apart from that fact, the most significant feature of the Committee's report is that senior officers of both the appellant banks who were appointed as members of the Committee are parties to the report and their only dissent is in the final recommendation, but they have not recorded any dissent in the observations made and the findings given by the Committee regarding the role played by the officers of the two appellant banks and that the officials of the two appellant-banks could be held primarily responsible for the perpetration of the fraud (page 152 of the report). In view of this significant feature of the case, the decision in the case of Tamil Nadu Electricity Board is not applicable to the facts of the present case. 16.3 As far as the decision in State of M.P. v. M.V. Vyavsaya Co. (199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 justification for the High Court to direct the appellant to file suit on ground of disputed questions of fact. The respondent Bank is an instrumentality of the State and it must function honestly to serve its customers. In view of the findings given by the Committee, which are also based on the findings given by the internal investigation team of the appellant-banks themselves, we are of the view that both the appellant-banks being nationalized banks, which are State within the meaning of Article 12 of the Constitution, cannot be permitted to avoid their civil liability on the ground of disputed questions of fact or alternative remedy in view of their own action and internal investigation reports as discussed in para 8 of this judgment. 17. Having disposed of the preliminary objections, which discussion also covered the findings given by the Committee on merits of the controversy, the question that remains for consideration is whether the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 record of having delivered the receipts have been kept by the branches. (f) The branches issued certificates to the petitioner depositors giving details of the deposits. There was no mention in them that loans have been taken against the deposits. (g) Issue of such certificates is not in conformity with banking practice and internal instructions of the two banks. (h) ... ... ... ... ... ... (i) The branches allowed advances against the deposits. The resolutions for availing of the loans purported to have been passed by the cooperative societies/cooperative banks were brought to the branches by the middlemen/brokers. (j) The authorized signatories did not remain present themselves to sign and execute the loan documents, contrary to the bank's procedure and internal guidelines. (k) When an advance is granted to a borrower, it is the banking practice that the amount is credited to the account of the borrower. The borrower in turn, issues cheques on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eties/co-operative banks :- (a) The cooperative societies/cooperative banks are required to obtain prior permission of the Registrar of Cooperative Societies for depositing surplus funds outside the cooperative fold as required in terms of Section 71(1)(f) of the Gujarat Cooperative Societies Act, 1961. Such permission was not obtained by the cooperative societies/cooperative banks. Some of the cooperative societies/cooperative banks have mentioned that they had written to the District Registrar of Cooperative Societies seeking permission to deposit excess funds with the nationalized banks, but no reply or permission was received from the Registrar. Some of the cooperative societies/cooperative banks have also mentioned that when they enquired from the Registrar's office they were informed that no permission was required to deposit the funds with the nationalized banks. (b) Normally, the cooperative societies/ cooperative banks would place the deposits with nearby branches of banks in their area of operation. all the petitioner depositors are either in Kheda or Vadodara or Panchmahal districts but the deposits have been kept with branches of Bank of Baroda and Indian Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted to the units. (j) The commission/incentive was received by the cooperative societies/cooperative banks in demand drafts or in cash or partly in demand drafts and partly in cash. Although the cooperative societies/cooperative banks have stated that the incentives/commission received by them have been accounted for in their books, it is difficult to assume that the entire amount was brought into their books of accounts, as part of the amount was received in cash. Further, it was observed that fictitious accounts were opened in the names of some of the cooperative societies/cooperative banks in certain cases and drafts have been encashed through these accounts. It is possible that a portion of the commission has gone into the coffers of the office bearers and the officials of the cooperative societies/cooperative banks. (k) While, out of 19 petitioners, 18 have stated that commission/incentive has been received for placing the deposits, the Shree Bharat Cooperative Bank Ltd., is the only petitioner depositor, which has stated that no incentive was received by it. This bank has branches in more than one state and the surplus funds would have normally been diverted to a cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot whether X', Y and/or Z officers of Bank of Baroda and/or Indian Bank are guilty of the fraud and whether they are required to be imprisoned. In fact, the petitions are not for fixing criminal liability of any individual. 22. When the appellant-banks admitted having received the amounts from the co-operative societies/co-operative banks for investment in fixed deposit receipts for one year, the burden was obviously on the appellant-banks to prove that the advances granted against the fixed deposit receipts by pledging the fixed deposit receipts as securities was done at the instance of and with the consent of the depositors. A perusal of the complaints filed by the Bank of Baroda against its officers (para 8.2 hereinabove) and also a perusal of the chargesheet issued by Bank of Baroda to its officers who were Managers in-charge of its six branches at Surat involved in this operation (Chapter 11 of the Report and para 8.3 hereinabove), and so also the acts of commission and omission attributed by Indian Bank to its officers (Chapter 12 - Pages 139, 140 and Page 152 of the Report) leave no room for doubt that primarily it was the officers of the appellant banks who had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther parties, the facts are similar to the facts in the matters of Bank of Baroda. In paragraph 9 we have already set out the facts as revealed during internal investigations by the Indian Bank itself and the acts of commission and omissions noticed by the Indian Bank itself in so far as its officers at the three concerned branches are concerned. These facts indicate that the facts in respect of all the other depositors are similar to the facts in the appeals filed by the Bank of Baroda. 24. In our view, none of the decisions cited on behalf of the appellant banks come in the way of acceptance of the Report. 24.1 In State Bank of India v. Smt. Shyama Devi AIR 1978 SC 1263, the Apex Court examined the principles which govern the vicarious liability of an employer for the loss caused to a customer through the misdemeanour or negligence of an employee and held that the employer is not liable for the act of the servant if the cause of the loss or damages arose without his actual fault or privity and without the fault or negligence of his agents or servants in the course of their employment. The master is liable for his servant's fraud perpetrated in the course of master's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks has placed strong reliance on the decision of the Apex Court in Immani Apa Rao v. Gollapalli Ramalingamurthi AIR 1962 SC 370, and particularly on paragraphs 11 to 15. In the facts before the Supreme Court, two individuals had perpetrated a fraud to defeat a third party and, therefore, when one of them filed a suit for taking assistance of the Court to take advantage of the fraud, the Court denied its assistance. However, in the instant case, on the basis of the material on record it would appear that the office bearers of the co-operative societies/co-operative banks were negligent in entrusting the matters to middlemen, but their complicity is not proved. Admittedly, injury is caused to the co-operative societies/co-operative banks which were not party to the perpetration of the fraud and, therefore, the co-operative societies/ co-operative banks which have approached this Court cannot be denied any relief on the basis of pari delicto. Having carefully gone through the aforesaid decision, we are of the view that the principles laid down therein would apply only if it was found that the co-operative societies/ co-operative banks were themselves guilty of the fraud. In the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Ltd., the Godhra Nagrik Cooperative Credit Society Ltd. and Shree Sardar Patel Cooperative Credit Society Ltd. the disputed amounts as set out in Annexure 3 Part B to the aforesaid report dated 20.3.2001, subject to compliance with the terms and conditions stipulated in para 7(a) of the aforesaid report. (C) The admitted amounts mentioned in Annexure 3 of the report, with interest at the rate applicable to savings bank accounts as indicated in para 7(b) in Chapter 13 of the Committee report, that is Savings account interest rate applicable for the relevant period, if not already paid to the original petitioners-respondents in these appeals, shall be permitted to be withdrawn by them. (D) The appellant banks shall carry out the aforesaid directions regarding re-payments of fixed deposit receipt amounts to the respondent cooperative societies/ cooperative banks by November 30, 2003. In case of any delay, the appellant banks shall pay the respondent cooperative societies/ cooperative banks interest at the rate of 9% per annum from December 1, 2003 till the date of payment. (E) The parties shall bear the costs of the writ petitions as well as these appeals throughout. All ..... X X X X Extracts X X X X X X X X Extracts X X X X
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