Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2008(1) CPR 424(NC)
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION, NEW DELHI
M.B. Shah, President and Rajayalakshmi Rao and Anupam Dasgupta, Members
Uma Shankar Bhatt —Complainant
versus
Chairman-cum-Managing Director Punjab and Sind Bank and Ors. —Opp. Parties
Original Petition No. 98 of 2002
Decided on 11.12.2007

Counsel for the Parties:
For the Complainant:Mr. Sudhir Pandey, Advocate(instructed by M/s. S. Jalan & Company, Advocates.)
For the Opp. Parties:Mr. Pallav Saxena, Advocate.

IMPORTANT POINT
Bank is liable to reimburse its account holder if officers of bank i.e. Manager or cashier committed fraud and transferred amount from account of account holder to a third party’s account.

Headnote:(i) Consumer Protection Act, 1986—Section 21—Deficiency in Banking Service—Whether bank will be liable to reimburse its account, holder if officers of bank i.e. Manager and Cashier committed fraud and transferred amount from account of account holder to third party’s account, Yes.
       Held: From the record it is apparent that Mr. Kang, in collusion with Mr. N. K. Jain and others, committed fraud and misappropriated large amounts by transferring unauthorisedly the said amounts from the accounts of various depositors/investors, including that of the complainant.
       In the present case, it is stated by the Bank that the amount of Rs.15,00,000 was transferred from the account of the complainant on the basis of one letter alleged to have been written by the complainant. It is contended that the original letter is seized by the CBI and copy thereof is also not produced on record. In this set of circumstances, it would be difficult to arrive at the conclusion that the complainant had issued any letter authorizing the Bank to transfer the amount in favour of M/s. Bajrang General Traders, the proprietor of which is absconding, as stated in the Police Investigation. Further, there was no necessity of transferring the amount without there being any cheque issued by the complainant. If a Bank officer commits such fraud, the depositors/investors, who have invested their money with the Bank, would never be safe. In any set of circumstances, for such fraud, the Bank would be liable to reimburse the complainant/consumer sufferer. (Paras 16 & 17)
       From the aforesaid law, in our view, apparently there is negligence .on the part of the Bank in not repaying the amount to the complainant. Once it is known to the Bank that its Branch Manager, Mr. Kang, committed the fraud, the complainant ought not to have been harassed for years together by not repaying the said amount. It is the say of the complainant that his life savings were deposited with the Bank so that he could start a business. That dream has been shattered. He suffered heart trouble and other ailments because of the shock. (Para 20)
       Learned counsel for the Bank also contended that it was the duty of the complainant to establish that the letter dated 12.6.1997 for transferring the amount was a forged one. In our view, this submission is totally misconceived because(i) when a cheque book was issued, it was the duty of the Bank to insist on a cheque for transfer of the amount;(ii) it is for the Bank to establish that the signature on the said letter was that of the complainant;(iii) even that letter is not produced on record on the alleged ground that the record is seized by the CBI and(iv) even the CBI has arrived at the conclusion that a large amount was withdrawn by the Branch Manager, Mr. Kang, by committing forgery in conspiracy with one, Mr. Naresh Kumar Jain and others.
       When the so-called letter was received by the Manager for transferring the amount on the alleged signature of the Company, the Bank ought to have suspected as to why the entire amount which was deposited with the bank is transferred in the account of third party. A Manager or cashier of a bank are expected to have a reasonable degree of intelligence and knowledge ordinarily required of a person in his position to befit to discharge their duties. If that is not done, and the amount is disbursed to the third party, without verification of the signature of the depositor, or doubting/suspecting as to why no cheque was used as an instrument of transfer, when the whole of the amount lying in the account was being transferred in one go, the fault lies with the bank. Further, if the officers of the bank were not party to the fraud they would have immediately inquired as to what was the necessity of transferring the entire bank balance by a simple letter. (Paras 23 & 24)
       In these set of circumstances, there is no alternative but to pass an order directing the Bank to refund the amount of Rs.15,00,000 to the complainant with interest at the rate of 12% per annum. For the harassment and torture suffered by the complainant, at the hands of the bank, the Bank shall pay a sum of Rs.50,000 as compensation to the complainant. This order is required to be passed because knowing fully well that its Branch Manager has committed forgery, the Bank refused to pay the amount to a senior citizen, who had deposited his entire savings with the Bank. (Para 26)
       (ii) Consumer Protection Act, 1986—Section 23—Pecuniary jurisdiction of Fora—Amendment pertaining to pecuniary jurisdiction would have no retrospective effect and would have prospective effect. (Para 22)
       Result: Petition allowed.

Judgement Key Points

Key Points: - The bank is ordered to refund Rs.15,00,000 to the complainant with interest at 12% per annum and pay Rs.50,000 as compensation for harassment and torture. (!) (!) (!) - The issue addressed is whether a bank is liable to reimburse its account holder when officers (manager or cashier) commit fraud transferring funds without proper authorization. (!) - The complainant’s life savings were misappropriated due to collusion between bank officers and third parties, establishing negligence by the bank. (!) (!) (!) - The Commission held that the bank must reimburse the complainant for such fraud and not subject the depositor to prolonged harassment. (!) (!) - The decision cites that the bank’s duty includes verifying transfers and signatures; negligence in not verifying led to liability. (!) (!) - The order also covers pecuniary jurisdiction considerations and permission to proceed with merits, finding jurisdiction proper to decide on compensation and refunds. (!) (!) - The final disposition states: the complaint is allowed; the bank to refund Rs.15,00,000 with 12% interest and Rs.50,000 as costs/compensation. (!) (!) - The evidence shows a forged/misused authorization letter and absence of proper cheque-based transfer, establishing bank negligence. (!) (!) (!) - The case references Canara Bank principles about liability for forged cheques and bank duty to pay the customer, with emphasis on lack of valid authorization. (!) (!)

What is the liability of a bank to reimburse its account holder when bank officers commit fraud and transfer funds to a third party?

What is the bank’s responsibility under the Consumer Protection Act for deficiency in banking services in cases of internal fraud?

What is the appropriate relief and compensation when unethical delays and harassment by the bank are proven in a case of misappropriation of funds?

ORDER

M.B. Shah, J., President—The only question which requires consideration in this complaint is—Whether a bank is liable to reimburse its account holder if the officers of the bank, i.e. the manager or the cashier, commits fraud and transfers the amount lying in the account of the account holder to a third party’s account, without proper check or authorization?

2. In our view, if officers of the bank commit such a fraud and if the bank is held not liable to reimburse the depositor/investor, then a large number of depositors or investors would never be safe. In such a case, the bank has to reimburse the consumer.

Facts:

3. A senior citizen, aged 71 years at the relevant time, suffering from various ailments, has filed this complaint against the Opposite Party, namely, Punjab & Sind Bank, alleging gross deficiency in service and gross negligence committed by its officers. It is contended that the complainant’s life savings were deposited with the Bank which were unauthorisedly transferred from his current account to the account of a stranger; namely, M/s. Bajrang General Traders, without any cheque being issued by the complainant and without any instructions having been received from the complainant by the Bank. It is the say of the complainant that between 15.5.1997 and 30.5.1997, in all, Rs.15,00,000 were deposited by the complainant with the opposite party Bank in three instalments. On 13.6.1997, the officers of the bank unauthorisedly transferred the said amount in favour of M/s. Bajrang General Traders, with whom the complainant did not have any relationship prior to the transfer or any time thereafter. The complainant came to know this fact on 27.10.1997 when he went to withdraw the amount. Thereafter, on 31.10.1997, the complainant wrote to the Bank Manager of the opposite party Bank asking for grounds on which the aforesaid money was transferred from his account without his instructions.

4. On the same day, the bank replied that the amount was transferred on the basis of an authorization letter. As the complainant had not given any letter of authorization, he approached the Police and lodged an FIR on 5.11.1997 at Tangra Police Station, Calcutta.

5. Thereafter, on 11.11.1997, he served a Notice to the opposite party(Bank) through his lawyer seeking immediate refund of Rs.15,00,000. To that, vide letter dated 3.12.1997, the Bank denied its negligence and refused to refund the amount.

6. Because of the aforesaid conduct and realizing that his entire saving was lost, the complainant suffered severe shock, depression, mental agony, anguish, severe illness and pain. He also suffered heart problem and his health deteriorated, which impaired his power of reasoning and incapacitated him. Thereafter, his representatives made several visits to the Bank and prayed for refund of the amount. Further, his daughter approached and wrote to various authorities to see that fraudulently transferred money was refunded to the complainant. Finally, the complainant wrote to the opposite party Bank on 26.6.2001 praying for refund of the amount. In that letter, he specifically stated that he was an aged person and such harassment from a Nationalised Bank for the last few years had not only damaged his health but also enhanced his mental agony. He, therefore, requested/prayed for crediting his account with Rs.15,00,000 along with the accrued interest thereon. A copy of the said letter was sent to the Chairman and Managing Director of the Bank as well as to other authorities.

7. The Bank, vide its letter dated 2.7.2001 replied to that letter, stating that the matter had been reported to higher authorities and they would revert to the complainant soon. Thereafter, on 16.7.2001, the Bank wrote a letter to the complainant stating that the amount could not be refunded.

Hence, this complaint was filed on 14.3.2002 praying that the opposite party Bank be directed to refund the amount of Rs.15,00,000 to the complainant with interest at the rate of 18%

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IMPORTANT POINTBank is liable to reimburse its account holder if officers of bank i.e. Manager or cashier committed fraud and transferred amount from account of account holder to a third party’s account.

What is the liability of a bank to reimburse its account holder when bank officers commit fraud and transfer funds to a third party?

What is the bank’s responsibility under the Consumer Protection Act for deficiency in banking services in cases of internal fraud?

What is the appropriate relief and compensation when unethical delays and harassment by the bank are proven in a case of misappropriation of funds?

Cases Referred (2)

IMPORTANT POINT
Bank is liable to reimburse its account holder if officers of bank i.e. Manager or cashier committed fraud and transferred amount from account of account holder to a third party’s account.