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Judgment
A.S. Venkatachalamoorthy, J.—The first defendant in O.S. No. 100 of 1983 on the file of the Subordinate Court, Kumbakonam, is the
appellant.
The first respondent/plaintiff filed a suit for recovery of a sum of Rs. 32,638.85 being the principal and interest due on two Fixed Deposit
Receipts and for costs.
The case of the plaintiff can be briefly stated as under:-
The plaintiff is a merchant and landlord carrying on business in Kumbakonam. He used to deposit amounts in his name, in his wife''s name so also
in his son''s name with the appellant/first defendant bank. There was repeated canvassing by the bank officials for depositing amounts in the first
defendant-bank. On 16.2.1983, the plaintiff went to the first defendant-bank to invest and deposit Rs. 20,000/- as fixed deposit. The plaintiff met
the 2nd defendant viz., the Special Officer and told him that he would go to the United Commercial Bank of India, withdraw the amount and
deposit the same with the first defendant-bank. The 2nd respondent offered the service of a Bank Employee viz., the 3rd defendant by name
Haridoss to encash the cheque and asked the plaintiff to draw the cheque of the United Commercial Bank of India in the name of the 3rd
defendant Haridoss. Responding to the suggestion, the plaintiff drew a cheque in the name of Haridoss and he encashed the same from United
Commercial bank of India, Kumbakonam Branch and the amount of Rs. 20,000/- was brought to the first defendant-bank''s premises. Necessary
challan was filled up in the name of the plaintiff alone for 36 months fixed deposit and the challan and the amount were handed over to the Special
Officer. The Special Officer verified the amount of Rs. 20,000/- and stated that F.D. receipt will be issued within sometime. Shortly thereafter, the
counterfoil of the challan and the F.D. receipt bearing No. 9331 were handed over to the plaintiff. The plaintiff was again approached by the bank
officials for further deposit and as such, the plaintiff went to the Bank on 25.4.1983. The bank officials promised to give incentives for the deposits
and said that they would give interest to the F.D. amount of Rs. 10,000/- to be deposited on that day from 17.3.1983. As in the previous
occasion, again, the services of employee Haridoss was offered and the plaintiff issued a cheque in the name of Haridoss as done before, as per
the instructions. The plaintiff was given the F.D. receipt for Rs. 10,000/- with interest to be paid from 17.3.1983 onwards. Here again, the amount
was handed over to the Special Officer. Somewhere in September 1983, the plaintiff''s brother complained some malpractice in the bank and
hence the plaintiff wanted to close all the fixed deposits, savings bank account and recurring deposit account and issued notice to the Special
Officer. Though the notice was acknowledged, no reply was received by the plaintiff. Then the plaintiff sought the services of the Union Bank of
India.
The plaintiff was informed by Union Bank of India, his bankers, that till the date of filing of the suit, in spite of the repeated demands, the United
Bank of India could not able to get any reply. Without responding to the request of the plaintiff, the first defendant instituted a complaint with police
against its employee Haridoss and the plaintiff was served with summons for the enquiry u/s 65 of the Co-operative Societies Act. Since the F.D.
Receipts had already been handed over, the plaintiff is in possession of only photocopies of the same. Defendants 2 and 3 have been added as
they are necessary parties. The Bank is directly and vicariously liable to pay the suit amount. Any fraudulent act or entry by defendants 2 and 3
would not in any manner affect the interests of the plaintiff. In fact, during the enquiry u/s 65 of the Co-operative Societies Act, the plaintiff was
threatened and coerced to give various false statements and sign certain documents, which the plaintiff refused to do so. In substance, the plaintiff
would claim that he is entitled for Rs. 32,638.85 due under fixed deposit receipts numbering 9331 and 9311 with interest as stipulated up to
30.09.1983 and from that date onwards at 21% per annum.
The first defendant-bank filed a written statement, denying the various allegations. According to the first defendant, the plaintiff used to move
closely with the 3rd defendant. The claim that there was canvassing for Fixed Deposits by the bank officials has been denied. A specific statement
is made that the plaintiff used to move only with the 3rd defendant regarding every transaction and he never consulted the officials of the first
defendant for any deposit in the bank. The Special Officer was not met by the plaintiff and the Special Officer never stated that he would go to the
United Commercial bank to withdraw the amount and to deposit the said amount in the first defendant-bank. A fraud has been played on the Bank
by the plaintiff in collusion with the 3rd defendant. According to the bank, no cheque was drawn in the name of the first defendant-bank and that it
is not aware of the cheque issued to the 3rd defendant and the encashment of the same by the 3rd defendant. The deposit of Rs. 20,000/- was
made only by the 3rd defendant in the name of the plaintiff and himself and the real fixed deposit receipt was issued in the name of the plaintiff and
the third defendant under either or survivor account. According to the first defendant, even the challan for payment was in the name of both the
persons. Instead of giving the real F.D. receipt, the 3rd defendant, taking advantage of his work and custody of blank F.D. Receipts, has chosen
to issue a fraudulent F.D. receipt in 9000 series when actually real F.D. receipts were being issued in 5000 series. Therefore, according to the
bank, the receipt issued to the plaintiff is a fraudulent one and the 3rd defendant has issued the same to the plaintiff forging the signature of the
officials. The prestige and the public confidence in the bank were smashed by the act of the 3rd defendant in collusion with the plaintiff and others.
The third defendant has issued several such fraudulent F.D. Receipts. In fact, when the bank came to know of this, the Special Officer took
prompt action by issuing a Memo to the 3rd defendant calling for his explanation. The 3rd defendant admitted his guilt and prayed for time till
30.10.1983 to settle the account. Pending further enquiry, the 3rd defendant was put under suspension. For the notices received by the plaintiff, no
reply could be sent since the equiry regarding the third defendant was pending and accounts were being looked into. According to Bylaw 25, in
case of borrowing from non members, the receipt has to be executed by at least 3 members of the Board of Directors of whom the President shall
be one. Again, under Bylaw VIII, under the head ""current deposit"", all entries in the pass book should be done by the authorised officer and the
customers have been particularly requested to see that all entries of receipts and payments have to be carefully examined and any error discovered
should be pointed out at once. According to the first defendant, the plaintiff ought to have been more vigilant in giving the cheque in the name of a
third party viz., third defendant and without verifying the receipts and accounts of the Bank, he cannot claim the amount after knowing the
suspension of the third defendant by the Bank. The first defendant however would admit that strangers are entitled to assume that all things
connected in a transaction with a bank and pertaining to the internal management have been validly done and would contend that the same has no
application to fraudulent and forged instruments. A bank or a limited company cannot be held to be answerable to third parties for the fraudulent
acts of its servants or officers when the latter is not acting within the scope of his authorities and when he is acting in breach of the rules and bylaws
of the bank. Hence, the plaintiff cannot claim any amount under the forged fraudulent F.D. receipt bearing No. 9331. In the statement, the first
defendant would explain the procedure by stating that for opening a fixed deposit account, a party should approach the concerned clerk who will
give him the F.D. application specimen signature card etc. Then the party should sign before the manager of the bank and he will counter sign the
card. Then, amount has to be paid under challan and the cashier should receive the amount and make an endorsement ""cash received"" and seal
should be fixed both on the foil and counter-foil of the challan and the amount paid will be noted in the chitta. Thereafter the F.D. sanction assistant
will receive the application, signature card and challan and he will enter the particulars in the F.D. account book, fill up the F.D. Receipt and put
the seal of the bank on the centre of foil and counter foil of the F.D. receipt so that half of the seal will be on the party''s F.D. receipt and the other
half in the bank''s counterfoil. Thereafter, all the papers will be sent to the Manager and he will verify everything and after satisfying himself, he will
note down the amount in his chitta and will sign the F.D. receipt both foil and counterfoil and he will send it to the Secretary. The Secretary, after
checking everything, will put his full signature on the party F.D. receipt and he will put his initials in the counterfoil and will send it to the Special
Officer. The Special Officer will in turn check the whole thing and after satisfying himself, he will sign and then send it to the Section Clerk. The
Section Clerk will get the signature of the party in the counterfoil and will give the original F.D. receipt to the party. There is a categorical statement
in the written statement that this procedure has not been followed in the instant case.
The claim that on 25.4.1983 the plaintiff met the Special Officer has been denied, as the latter was on leave on that day. It is averred in the
statement that from the facts and circumstances, it is clear that everything has been done by the 3rd defendant presumably at the instance of the
plaintiff without the knowledge and consent of the higher authorities of the bank and against the rules and bylaws of the bank and behind the back
of the first defendant. Therefore, the plaintiff is not entitled to claim any amount under F.D. receipt No. 9311. The other contentions made in para
Nos. 7, 8 and 9 of the plaint have been denied.
The trial court framed as many as five issues for consideration and both the parties let in oral and documentary evidence. The trial court, after
elaborately considering the oral and documentary evidence, came to the conclusion that the plaintiff has proved his case and thus entitled for a
decree for Rs. 32,188.85 with interest on Rs. 30,000/- at the rate of 9% p.a. from the date of plaint up to the date of decree and thereafter at 6%
p.a. till relisation.
Learned Advocate General appearing for the appellant reiterated the stand taken by the first defendant-bank. Learned Advocate General
contended that it cannot be said that the third defendant acted in the course of employment and that being so, the Bank cannot be made liable.
Secondly, it is contended that when the plaintiff received the fixed deposit receipts, he should have verified as to whether the same has been duly
signed by all the officials required as per the Bylaws. Had he verified, he could have found out and complained to the Bank authorities. That apart,
it is also submitted that apart from verifying that aspect, he should have also verified that while the earlier F.D. receipt carried latter number, the
F.D. receipts issued subsequently carried earlier numbers and from this also, the plaintiff could have found out that something is wrong and
informed the bank authorities.
Learned counsel appearing for the plaintiff/1st respondent would submit that it is only on the suggestion of the 2nd defendant/Special Officer,
services of the 3rd defendant were utilised by the plaintiff. That apart, it is also contended that it is the 3rd defendant, who was in charge of the
F.D. Section, in the sense that he was the concerned clerk in the bank, who used to receive money and issue the F.D. receipts. A further
submission has been made to the effect that the claim that the 3rd defendant did not act in the course of employment is without any basis. So far as
the case of the bank that there was negligence on the part of the plaintiff, in that, he failed to verify whether the F.D. receipts have been signed by
all the officials concerned, it is submitted that all that the plaintiff has to verify is whether the same has been signed. The bylaws streamline the
internal management of the bank and the first defendant-bank has not placed any material to show that the plaintiff was put on notice about the
bylaws and that the plaintiff was called upon to verify at every stage as to whether the bylaws have been followed while issuing the F.D. receipts.
In fact, the bank has admitted that the plaintiff is entitled to assume that all things connected in a transaction with the bank and pertaining to the
internal management have been validly done.
For better appreciation, at the outset, this Court considers it necessary to refer to certain statements made in the statement filed by the bank. In
the written statement, it is specifically admitted in para No. 4 that the 3rd defendant, taking advantage of his work and custody of the blank F.D.
receipts, had chosen to issue fraudulent F.D. receipts to the plaintiff. There is yet another categorical admission that strangers are entitled to assume
that all things connected in a transaction with a bank and pertaining to the internal management have been validly done. There is no denial of the
fact that at the relevant time, the 3rd defendant was the concerned clerk in the F.D. Section. In the written statement itself, the procedure to be
followed, when a person approaches the bank for the purpose of depositing money in F.D. Account, has been set out as under:-
Further for opening a fixed deposit account a party should approach the concerned clerk who will give him the F.D. application specimen
signature card etc. Then the party should sign before the manager of the bank and he will counter sign the card. Then amount has to be paid under
chalan and cashier should receive the amount and made an endorsement ""cash received"" and seal should be fixed both on the foil and counter-foil
of the challan and the amount paid will be noted in the chitta. Then the F.D. sanction assistant will receive the application, signature card and
challan and he will enter the particulars in the F.D. account book and he will fill up F.D. receipt and he will put the seal of the Bank on the centre of
foil and counter foil of the F.D. receipt so that half of the seal will be on the party''s F.D. receipt and the other half in the bank counter foil. Then
everything will be sent to the Manager and he will verify everything and after satisfying himself he will note the amount in his chitta and he will sign
the F.D. receipt both foil and counter foil and he will send it to the Secretary. The Secretary will check everything and he will put his full signature
on the party F.D. receipt and he will put his initials in the counterfoil and he will send it to the special officer. The special officer will again check the
whole thing and after satisfying himself he will sign and then send it to the section clerk. The section clerk will get the signature of the party in the
counter foil and will give the original F.D. receipt to the party. This is the procedure and in the above case nothing has been done.
From the above, it is clear that one has to sign the F.D. application form before the Manger of the Bank and the Manger will counter sign the
card. Again, it is stated that the Manager, before signing the F.D. receipt, should verify everything and only after satisfying himself, he has to affix
his signature. As already pointed out, in the written statement itself, it is admitted that this procedure has not been followed. From this, two things
are evident, ie., not only the 3rd defendant did not follow the procedure but also the manager of the bank. It is not the case of the bank that the
manager of the bank got the signature of the plaintiff in the specimen signature card etc. When the officers concerned themselves have committed
mistakes and irregularities, it would be futile to contend that the plaintiff should have been very vigilant. The position may be different if the plaintiff
has approached a watchman in the bank for the purpose of depositing some money in F.D. and that Watchman handed over certain bogus or
fabricated F.D. receipts to the plaintiff.
We do not see any substance in the submission of the learned counsel for the appellant that the plaintiff is guilty of contributory negligence in
that he should have verified the F.D. receipts to find out whether the Fixed Deposit receipt has been issued as per the bylaws. As already pointed
out, the bank has admitted that strangers are entitled to assume that all things connected in a transaction with a bank and pertaining to the internal
management have been validly done. That apart, it is not the case of the first defendant/bank that the plaintiff was served with a copy of the bylaws
and that the plaintiff, before investing amount in the F.D., has made a declaration that he is aware of the various bylaws of the bank.
Learned counsel appearing for the appellant would draw the attention of this Court to a Ruling of the Supreme Court reported in State Bank of
India (Successor to The Imperial Bank of India) Vs. Shyama Devi, and submit that the 3rd defendant did not act in the course of his employment
and that the whole thing has been perpetuated only by the fraudulent acts of the plaintiff along with the 3rd defendant. The above ruling relied on by
the appellant would not apply to the facts of this case. That was a case where a client of the bank paid certain amount to an employee of the bank
for crediting it to her account and the Supreme Court, in that case, ruled that the onus was on the client to show that she paid the amount to the
employee of the bank and was received by that employee in the course of his employment with the bank. As already pointed out, in this case, the
plaintiff handed over the cheque to the 3rd defendant, who is the concerned clerk in the bank and secondly, as per the procedure, the Manager of
the bank should have obtained a signature of the plaintiff in the application specimen signature card etc., but however, the Manager failed to do so.
Reliance is also made on a Judgment of a single Judge of this Court in A.S. No. 804 of 1986 (Syndicate bank, Coimbatore vs. T.M. Khader
Shah and another). We may straight away say that the said ruling would not apply to the facts of this case. That was a case where the plaintiff
opened a Pigmy Deposit Account on 15.2.1980 with first defendant-bank. The 2nd defendant, who was an employee of the first defendant-bank
was collecting a sum of Rs. 100/- per day from the plaintiff and he misappropriated the same. It could be seen from the said Judgment that the
plaintiff was informed about the rules and regulations relating to the said scheme and the plaintiff was informed that weekly card system was
introduced to ensure that the savings were properly accounted for and by that system, the balance upto the end of previous week could be
verified. In the communication sent to the plaintiff, he has been informed that the depositors should authenticate the correct weekly collections and
sign the confirmation part which would be retained by the bank and the depositors would be issued counterfoil showing the balance of previous
week duly confirmed by the bank and the weekly collections authenticated by the depositors and confirmed by the collecting representatives would
be given and that the plaintiff, in acceptance of the same, has also signed. In the evidence also, in that case, the plaintiff admitted that he was aware
of the weekly card system and what is expected is issuance of weekly card. However in that case, the plaintiff was given a pass book and there
was no initial in the said book by the officials. In those circumstances, the court held as against the plaintiff.
We deem it necessary to point out what the learned single Judge has observed in that case.
Though the bank has also acted in a negligent manner in not sending weekly confirmation reports to the plaintiff, yet the negligence is not sufficient
to enable the plaintiff to claim the amount collected by the second defendant in some other account other than Pigmy Deposit Account"".
Suffice to say that the negligence on the part of the bank cannot be taken in such a light manner. Any how, we are not concerned with that in this
appeal and we are not here to examine as to whether that reasoning is correct or not.
Before winding up the discussion, we deem it necessary to refer to a ruling of the Supreme Court reported in Union Bank of India Vs. Vishwa
Mohan, , wherein the Supreme Court has ruled thus:-
... It needs to be emphasised that in the Banking business, absolute devotion, diligence, integrity and honesty needs to be preserved by every
bank employee and in particular the bank officer. If this is not observed, the confidence of the public/depositors would be impaired. ...
In this view of the matter, we hold that the first defendant-bank is liable to make good the loss to the plaintiff. Consequently, we confirm the
judgment and decree of the trial court and dismiss the appeal.
In the result, the appeal is dismissed with costs.