Rule 5(2)(ii) of the RBI Note Refund Rules requires proof that notes were deliberately cut with the intent to make a false claim or defraud the bank to justify rejection. Recovery of financial loss cannot be ordered if no actual loss or malicious intent is established in disciplinary proceedings.

O R D E R

1. This writ petition has been filed aggrieved by an order passed by the Respondent No.1 vide Office Order bearing No.39/2005-2006, dated 23.07.2005 as modified by the Respondent No.2 vide Office Order bearing No.261/2005-2006, dated 19.12.2005 and to quash the same.

2. The brief facts that are relevant for disposal of this writ petition are as under:-

2.1. While the petitioner was working as ‘Assistant Treasurer' in the Cash Department of Reserve Bank of India, Chennai, a show cause notice dated 28.08.2003 was issued to the petitioner alleging that in the course of scrutiny of notes adjudicated by the petitioner, 5533 pieces of Rs.500/- denomination notes for refund of amounts were ought to have been rejected under Rule 5(2)(ii) of the Reserve Bank of India - Note Refund Rules (hereinafter referred to as the ‘Refund Rules'), but they were allowed by the petitioner and therefore, he was required to make good an amount of Rs.27,66,500/- within 10 days. In response to the same, the petitioner submitted his reply dated 17.09.2003. However, the competent authority, having not been satisfied with the reply submitted by the petitioner, subjected the petitioner to disciplinary proceedings by duly placing him under suspension and issued the charge sheet dated 28.10.2003. The said charge framed against the petitioner reads as under:-

“2. It has been reported that:-

(i) During the course of a detailed scrutiny of defective notes received at the exchange counters and adjudicated on various dates in May/June, 2003, it was observed that a large number of Rs.500/- denomination notes which appeared deliberately cut and therefore not payable were passed for payment. It has further been reported that currency notes of Rs.500/-denomination apparently cut deliberately in a particular pattern and which should have been rejected under Rule 5(2)(ii) of the RBI Note Refund Rules were passed for payment by you while on duty at the exchange counters. It has also been reported that as many as 5533 pieces of such notes of Rs.500/- denomination were passed by you as detailed in the annexure in violation of the prescribed rules and procedures instead of rejecting them

(ii) It would appear from the above that you have displayed gross negligence in the discharge of your duties by failing to discharge your duties as the passing official diligently and conscientiously and in accordance with the prescribed procedure. You have also acted in a manner detrimental to the interests of the Bank by passing for payment deliberately cut notes which should have been rejected under the relevant provisions of the Note Refund Rules as aforesaid and thereby caused huge financial loss to the Bank.

3. You are therefore charged with having committed act of gross misconduct within the meaning of Regulation 47 of RBI (Staff) Regulations, 1948 by having displayed gross negligence in the discharge of your duties and acted in a manner detrimental to the interests of the Bank and having caused huge financial loss to the Bank by your aforesaid conduct.”

2.2. In response to the same, the petitioner submitted his explanation dated 07.01.2004 contending that Rs.500/- notes adjudicated by him does not appear to have been deliberately cut, torn or defaced, altered or dealt with in any manner, much less with a view to establishing a false claim, because most of the notes