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2025 Supreme(Online)(DRAT) 471
DEBT RECOVERY APPELLATE TRIBUNAL
MR. G. CHANDRASEKHARAN, CJ
The Hong Kong and Shanghai Banking Corporation Ltd. – Appellant
Versus
The State Bank of India Main Branch, Coimbatore – Respondent
RA 121/2017 | OA 69/2008
For the Appellants/Petitioners: M/s S. Rajendra Kumar & Co.
For the Respondents: M/s Ramalingam & Associates
A collecting bank must verify the authenticity of instruments presented for clearance and fulfill KYC duties to avoid liability for fraudulent transactions.
Headnote:(A) RDDB & FI Act - Section 20 - Appeal against DRT order - Appellant bank contests liability for amount due to fraudulent warrants issued by third parties - First respondent invoking the need for verification of customer details. The presiding officer held liable the appellant bank, affirming their duty to disclose necessary account holder information, failing to meet KYC norms. (Paras 2, 6, 21)
(B) Banking Duties - Collecting banks must ensure due diligence and verification to establish the authenticity of instruments presented for clearance to avoid liability in cases of fraud. (Paras 8, 12, 20)
Facts of the case:
Appellant bank filed an appeal against an order from DRT compelling them to pay a significant amount due to fraudulent warrants presented by their customers to be collected through another bank.
Findings of Court:
The Tribunal found that not supplying necessary customer information prevented the first respondent from taking legal action against the fraudsters.
Issues: The core issue involves the liability of the appellant bank concerning non-disclosure of customer details post-fraud.
Ratio Decidendi: The court highlighted the necessity of due diligence in the banking process relating to KYC norms and customer verification.
Result: Appeal dismissed, subject to the condition that liability depends on recovery efforts against the fraudulent parties.
| Table of Content |
|---|
| 1. appeal based on procedures under rddb & fi act. (Para 1 , 2 , 8) |
| 2. case details of fraudulent warrants presented and cleared. (Para 4 , 5) |
| 3. liability concerning kyc norms and disclosure failure. (Para 6 , 7 , 18) |
| 4. duties of banks in verifying customer details. (Para 11 , 12 , 19) |
| 5. outcome of the appeal and conditions for liability. (Para 21 , 22) |
ORDER
1. This appeal is filed under Section 20 of RDDB & FI Act, challenging the order passed by Learned Presiding Officer, DRT, Coimbatore dated 21.9.2011 passed in OA 69/2008.
2. Aggrieved by the aforesaid order, first respondent before Tribunal below in OA 69/2008, viz., The Hong Kong and Shanghai Banking Corporation Ltd. filed this Appeal.
3. First respondent in this Appeal i.e., State Bank of India as applicant filed OA No.69/2018 against the appellant and two others for recovery of a sum of Rs.21,25,278/- together with interest at 16.75% with monthly rests from the date of the application till realization and costs.
4. The case of the first respondent bank before Tribunal in brief is that respondents 2 and 3 are customers of the appellant bank. They have account with Noida branch of the Appellant Bank. They presented Redemption Warrants with various amounts amounting to Rs.19.50 lakhs purported to have been issued by SBI Mutual Fund, the Principal Trustee of State Bank of India drawn on State Bank of India, Dividend Warrant Section, Mumbai, for clearing through the appellant bank.
These warrants are payable at par. On receipt of these warrants, first respondent bank with a bona fide intention and good faith paid the value of respective dividend warrants. Thereafter, dividend warrants were sent by the first respondent to SBI Mutual Fund for payments.
They were returned as fake.
5. First respondent wrote to the appellant bank on 12.22.2007 calling it to furnish the address of second and third respondents’ account details with address to proceed legally against them for recovery of amount. Appellant bank replied on 24.12.2007 assuring payment. However, appellant bank neither paid any amount nor furnished account details, address, etc. of second and third respondents. It resulted in non recovery of the amount from respondents 2 and 3. In the circumstances, the aforesaid OA was filed before DRT, Coimbatore for recovery of amounts against the appellant bank and respondents 2 and 3. Appellant bank and respondents 2 and 3 had not contested the claim of the first respondent bank before the DRT. Learned Presiding Officer, DRT, Coimbatore on going through the documents produced, found that appellant bank and respondents 2 and 3 are liable to pay a sum of Rs.21,25,278/- together with interest at 16.75% p.a. and costs of Rs.50,000/-. Challenging the said order, appellant bank filed this appeal.
6. Learned Counsel for appellant bank submitted that respondents 2 and 3 presented dividend warrants issued by SBI Mutual Fund for collection through the appellant bank. In the usual course of business and in good faith, appellant presented these warrants for clearance. These dividend warrants were cleared by first respondent bank and amounts were credited into the accounts of respondents 2 and 3. The warrants were cleared between 27.10.2007 and 5.12.2007. Coimbatore Branch of first respondent bank vide its letter dated 12.12.2007 wrote to appellant bank stating that these warrants are fraudulent and requested the appellant to recover the amounts from respondents 2 and 3 and refund to the first respondent bank. It was replied on 17.12.2007 informing that most of the funds had been withdrawn by respondents 2 and 3, however, a hold has been placed on the accounts of respondents 2 and 3 with immediate effect. Thereafter, there was no follow up by the first respondent bank. Only after three months, a legal notice dated 1.3.2008 was received by the appellant bank. Appellant bank informed in its reply dated 31.3.2008 that as per law under RBI guidelines, KYC details of customers are confident
