Banks cannot disown their liability to the depositors in the event of their employees committing fraud on the depositors during the course of their employment with the bank.
By Every one of us has one or more savings, current or fixed deposit accounts with one or another bank. In the case of savings bank account the pass book is given to the account holder wherein the entries of the deposits or withdrawals are made at intervals. In this connection, two questions arise.
One, do the entries in the pass book have any sanctity? And two, would the bank concerned be liable to make good the loss to the account holders in case the bank's employee(s) embezzle the depositors' funds by manipulating the entries in the pass books? The above questions arose in a bunch of cases, which were recently decided by a common judgment by the National Consumer Disputes Redressal Commission on September 7, 2010. Fifteen depositors, who were villagers living in Lakhnaura, District of Ambala (Haryana), noticed that their pass books indicated certain credit balances that were at variance with those appearing in the bank's ledger account. The discrepancy indicated a number of withdrawals which were never made by the depositors. Besides, some of their fixed deposits too were shown to have been prematurely withdrawn.
The bank involved in all these cases was the Haryana Gramin Bank, which has a branch office in the village where the depositors concerned were residing. All the depositors reported the matter to the bank, which on investigation found that the withdrawals from the accounts of these depositors were made without any payin-slips or cheques issued by them and the pass books were also manipulated so as not to show such withdrawals.
All these amounts were frittered away by Pawan Kumar Lehna, exbranch manager.
While criminal cases were filed against the ex-branch manager and some other employees, complaints were also filed against the bank before the District Consumer Disputes Redressal Forum, Rohtak where the bank denied its liability on the plea that the fraud was committed by its employee(s) against whom the matter was pending in the criminal court and that the bank was in no way responsible to the depositors. Repelling the bank's contention, the District Consumer Forum directed the bank to pay all the depositors the amounts which had been unauthorisedly withdrawn from their accounts. An appeal was filed by the Haryana Gramin Bank before the Haryana State Consumer Disputes Redressal Commission, Panchkula which by its order dated March 19, 2010 held the bank vicariously liable for the fraud and embezzlement of the amounts deposited by its customers.
The bank concerned came up before the National Consumer Commission in 15 revisions filed against the order of the Haryana State Commission which, by its order dated September 7, 2010 dismissed all of them by upholding the orders passed by the State Commission and the District Forum.
The judges relied on the judgment of the Supreme Court in State Bank of India v. Smt.
Shyama Devi AIR (1978) 1263 (SC) wherein the apex Court had held that "a master is liable for his servant's fraud perpetrated in the course of the master's business, whether the fraud was for the master's benefit or not, if it was committed by the servant in the course of his employment". While the above judgment will not only be of great help to banks' depositors who go by the pass book entries but also serve as a warning to banks that they cannot disown their liability to the depositors in the event of their employees committing fraud on the depositors during the course of their employment with the bank.
The judgment also calls upon the depositors not to take the entries in their pass books on their face value but to check their accounts with the banks at regular intervals.
Author is an advocate & editor of Consumer Protection & Trade Practices Journal (CTJ) rosykumar2000@ yahoo. com