Banks are vicariously liable for the fraudulent acts of their employees when customers interact with them under the presumption of legitimate authority.

JUDGMENT

AVM J. RAJENDRA, AVSM VSM (Retd.), MEMBER

1. The present Consumer Complaint has been filed under Section 21 of the Consumer Protection Act , 1986 (for short “the Act”) against the Opposite Parties (OPs) seeking to direct the OPs:-

“A. Direct the Opposite Party to reimburse the amount of Rs.1.7 crores to the Complainant along with 18% interest p.a. w.e.f. 2.2.2012;

B. Direct the Opposite Party No.1 to refund an amount of United States of America Dollars (USD) 21094.66 and Canadian Dollars (CAD) 32329.05 (21552.70+10776.35) in lieu of Three (3) Foreign Currency SDR’s along with 18% interest;

C. Pay a sum of Rs.10 Lakhs as exemplary damages and mental agony caused by the Opposite Party to the Complainant for having failed to repay the amount in time; and

D. Pass any other and further relief, which the Hon’ble Commission thinks fit and proper in the facts and circumstances of the case in favour of the Complainant and against the Opposite Party”.

2. Brief facts of the case, as per the Complainants are that Mr. Natwarlal Khatri and Mrs. Ruxmaniben Parmar, are Non-Resident Indians (NRIs) currently residing in Fiji. Mr. Khatri is a retired businessman, while Mrs. Parmar is a homemaker. The Opposite Party (OP) No.1 is Dena Bank, a Public Sector Bank fully owned by the Govt of India, constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 which was later merged with Bank of Baroda (OP-3). OP-2 is Shri Kishan Mistry, a clerk employed at the OP Bank, accused of committing fraud. OP-3 and 4 are the Branch Manager and Regional Manager of Dena Bank, respectively who are later deleted by the Order dated 23.08.2017 of this Commission. The complainant contended that present complaint arises from the gross deficiency in services rendered by the OPs. The Complainants, who are the account holders and investors with Dena Bank, became victims of a fraudulent act carried out by its clerk, Shri Kishan Mistry. The said clerk prematurely encashed their Samruddhi Deposit Receipts (SDRs) after forging their signatures, misappropriating over Rs.1.7 crores. Despite being fully aware of the fraud, the OP Bank failed to take appropriate and timely action. The Bank is vicariously liable for the fraudulent acts committed by its employee during the course of employment and for failing to act on numerous representations made by them. They contended that the Samruddhi Deposit Receipts (SDRs), functionally similar to Fixed Deposit Receipts (FDRs), are issued for a fixed tenure with options for auto-renewal or transfer of maturity proceeds to a savings account. In this case, the clerk committed fraud through multiple means by encashing funds from the Complainants’ savings account by forging signatures; failing to renew SDRs submitted for renewal and instead fraudulently encashing; misappropriating SDRs and issuing fake or lost deposit receipts. The fraud occurred in two main instances when Shri Kishan Mistry prematurely broke three SDRs (Nos. 2926964, 2926965, and 9523776) held by Mrs. Ruxmaniben Parmar and Mr. Natwarlal Khatri after forging signatures and withdrawing about Rs. 1.7 crores and when Mr. Khatri had handed over three other SDRs (Nos. 2926985, 2926987, and 2926974) to Shri Mistry for renewal, he forged signatures and encashed the amounts. OP Bank, on 25.12.2015, published a public notice in a local newspaper listing missing FDRs, inviting concerned parties to approach the Branch Manager at Samroli. The Complainants obtained a copy of this through in