Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ujjal Bhuyan and Abhay Ahuja, JJ., while addressing an issue with regard to the Cooperative Societies, made an observation that,

We find it a bit perplexing that for a dispute having its genesis in charging or billing of an individual shareholder member, drastic steps, such as, dissolution of the managing committee and appointment of Administrator have been resorted to.

Petition challenges the Order passed by the Dy. Registrar i.e. respondent 2 directing the Shyamrao Vitthal Co-operative Bank — respondent 4 not to allow the petitioner to operate the Society bank account and challenging the order passed by respondent 2 also directing respondent 4 Bank to permit the administrator appointed by respondent 2 to operate the bank account of Viddhisha Shantiniketan CHS Ltd. i.e. Respondent 7 Society.

Bench on perusal of the facts and circumstances of the present case noted that the present matter is a very hotly contested dispute between the office bearers of the Society on the one hand and an individual of the Society on the other hand.

High Court declined to entertain the present petition as the appeal is still pending for the present matter.

Court directed respondent 3 to decide the pending appeal so that the day-to-day functioning of the Society is not hampered due to the dispute.

Till the disposal of the appeal is done Society shall be jointly managed under the Chairmanship of the petitioner and the Respondent 6 only for day to day affairs including payment of municipal taxes, light bills and other outgoings of Respondent 7 Society.

Bench added to its direction that respondent 4 shall unfreeze the account to allow the operation of the respondent 7 account.

Co-operative societies are now a part of the constitutional scheme as cooperative societies have been inserted in the Constitution of India as Part IX B by way of the Constitution (Ninety-seventh Amendment) Act, 2011 w.e.f 15-02-2012.

Therefore, in view of the above-stated position, co-operative societies should have the necessary space and autonomy to function and develop to its full potential. Also, interference in their matter should be avoided unless there is a serious statutory breach.

Court disposed of the present petition in view of the above terms. [Rambujarat Ramraj Chaurasia v. State of Maharashtra, 2020 SCC OnLine Bom 901, decided on 02-09-2020]

Case BriefsForeign Courts

Supreme Court of the United Kingdom: A Full Bench of Lady Hale (President), Lord Reed (Deputy President), Lord Lloyd Jones, Lord Sales, and Lord Thomas, dismissed the appeal filed by a bank.

In the present case, the respondent company, “Singularis”, is registered in the Cayman Islands, which was set up to manage the personal assets of Mr Maan Al Sanea. He was the company’s sole shareholder and also one of the directors. The other 6 directors did not have any influence over the company’s management. A loan financing for the purchase of shares was provided to Singularis in 2007, by the appellant investment bank i.e., Diawa. This loan was also the security for the repayment of the loan. In the year 2009, after the shares were sold and the loans were repaid, a surplus amount of money (US$204m) was held by the bank for the account of the respondent company. As per the instruction given by Al Sanea, Daiwa paid out the surplus funds to third parties. The payments were misappropriation of Singularis’ fund and as a result of that Singularis was unable to meet the demands of the creditors. Singularis consequently entered into liquidation. On 18.09.2009, the Cayman Islands made a winding-up order and a joint liquidator were appointed for the same.

Respondent company herein (Singularis) held a certain sum of money as a deposit with the appellant bank (Daiwa). In 2009, the bank Daiwa was instructed by an authorised signatory of Singularis (Mr. Al Sanea) to make payments out of Singularis’ account. The Bank approved and completed the transfers notwithstanding many obvious and glaring signs that Mr. Al Sanea was perpetrating a fraud on the company. In 2014, Singularis issued a claim against the bank for USD 204 million (the total amount transferred in 2009). There were two bases for the claim: (i) dishonest assistance in Al Sanea’s breach of fiduciary duty in misapplying Singularis’ funds; and (ii) breach of the Quincecare duty of care owed by the Bank to Singularis by giving effect to the payment instructions.

The Quincecare duty arises when bankers are asked to make payments in circumstances where there are reasonable grounds to suspect possible fraud. In such a situation, banks owe a duty of care to their customers to refrain from making payments. When “on inquiry” in this way, banks have a positive duty to investigate the potential fraud, they have to be satisfied, by enquiring as far a reasonable banker could be expected to do so, that the payment is not fraudulent before they can be “off inquiry” and go on to comply with their contractual obligations and make the payment.

The claim allowed by the High court was the breach of the Quincecare duty of care. Since Daiwa’s appeal against the finding of liability on the negligence was dismissed, it appealed to the Supreme Court.

The main issue which arose in this matter was, whether the appellant bank was in the breach of its duty towards their customers by transferring the money regardless of circumstances which were suspicious. Also, whether the customer’s claim against the bank was precluded by the fact that the fraudulent acts of the director should be attributed to the customer so as to bar the claim of the customer against the bank.

According to the findings of the case, the judge held that there was a clear breach of Quincecare duty of care by the appellant bank towards the respondent company. The possible defences raised by Daiwa were: illegality, causation, countervailing claim in deceit and attribution. The Court opined that whether or not Mr. Al Sanea’s fraud was attributed to the company, the said defences would fail in any circumstance. It was held that Daiwa was liable to Singularis for its breach of Quincecare duty. It was the appellant bank’s duty to realise something suspicious was going on and a reasonable inquiry should have been done for the same. Due to Daiwa’s negligence, the company (and through the company, its creditors) had to suffer and be victims of fraudulent incidents.

Thus, the claims of Daiwa were dismissed and the judgment of the trial court was upheld. [Singularis Holdings Ltd. v. Daiwa Capital Markets Europe Ltd., [2019] 3 WLR 997, decided on 30-10-2019]

Case BriefsHigh Courts

Gujarat High Court: The Bench of N.V. Anjaria, J. dismissed a petition challenging the eligibility criteria in Advertisement No. RC-0719/2019 published by the respondents, for the position of Civil Judge, holding that a Deputy Manager working in the legal branch of a bank could not be treated as an employee working in the ‘department allied to Court’.

Rule 7(2)(b) of the Gujarat State Judicial Services Rules, 2005 states that the eligibility required for selection to the position of a Civil Judge. is that a candidate “must be practicing as an Advocate in Courts of Civil and/or Criminal Jurisdiction on the last date fixed for receipt of application; or must be working in the Courts or other allied Departments on the last date fixed for receipt of application.” 

Petitioner herein who was working as a Deputy Manager (Law) in the real estate department of a bank, was determined as ineligible for the post of Civil Judge and his application was rejected on the ground that it did not fall within the aforestated eligibility criterion. The petition questioned the ambit of “other allied Departments” in Rule 7(2)(b) and whether it included a candidate working as a Deputy Manager (Law) in a Government Bank.

Learned counsel on behalf of the petitioner, Jenil M. Shah submitted that the petitioner had cleared the All India Bar Examination and had the license to practice as an Advocate in the courts of India. Thereafter, he was appointed as the Deputy Manager (Legal) of State Bank of India. His work description indicated that he had been dealing with all kinds of legal work, including consultation and drafting. Hence, there was no reason to exclude the bank from “other allied Departments” and exclusion of bank from the ‘list of allied departments’ as stated under Instruction 10 of the Advertisement, was unjust and arbitrary.

Learned Advocate on behalf of the respondent, Shalin Mehta, submitted that the word ‘other allied departments’ in Rule 7(2)(b) has been used in conjunction with the word ‘courts’. The categories enumerated under the head of ‘other allied departments’ in Instruction 10 were those by which only the employees associated with courts or those familiar with court work are able to apply for the post of Civil Judges.

The Court noted that the impugned instruction categorized four departments as ‘allied to Court’: (i) High Courts or any courts subordinate; (ii) Office of the Government Pleader, Gujarat High Court; (iii) Office of the Government Pleader, City Civil Court Ahmedabad; and (iv) Legal Section or Legal Department, Government of Gujarat.

It was opined that selection of eligibility conditions is within the domain of the employer or the appointing authority; and judicial review thereof may extend only to see that the norms prescribed and the eligibility contemplated are relevant and have a rational nexus with the post concerned. Reliance in this regard was placed on Chandigarh Admn. v. Usha Kheterapal Waie, (2011) 9 SCC 645.

Further, the Court relied on K.C. Vasanth Kumar v. State of Karnataka, 1985 Supp SCC 714 and applied the interpretation rule of noscitur a sociis which states that where general words follow a specific word, the general words must be confined to things of the same kind as those specified. It was opined that the categorization of ‘allied departments’ in the advertisement was aimed at inviting candidates having proficiency and experience in relation to Court. Thus, there was a balance and blend between the context and purpose of the impugned condition.

In view of the above, it was held that the petitioner was not eligible for participating in the recruitment process for appointment to the post of Civil Judge. [Avinash Detha v. Registrar (Recruitment), 2019 SCC OnLine Guj 804, Order dated 25-04-2019]

Case BriefsHigh Courts

Bombay High Court: Sunil K. Kotwal, J., allowed SBI Insurance Co. (insurer) to recover, from the owner of the offending bus (insurer), the amount paid to a third party claimant) under a policy which was cancelled by the insurer on account of non-payment of the premium amount by the insured.

An accident occurred between a motorcycle and the offending bus, as a result of which the driver of the motorcycle passed away. A claim petition was filed by the claimants under which an award was passed by the Motor Accident Claims Tribunal. The insurer paid the claim amount in the discharge of its liability towards the claimant. It, however, claimed to recover the said amount from the insured. Insurer’s case was that the insured issued a cheque in his favour towards payment of the insurance premium for the policy taken on 10-11-2015. The accident occurred on 19-11-2015. Pertinently, the cheque issued by the insured towards payment of premium got dishonoured by the bank and, therefore, the insurer cancelled the policy on 14-12-2015. As such, the insurer claimed recovery of the amount paid to the third party.

After perusing the authorities cited, the High Court was of the opinion that in such type of cases, if the policy is cancelled before the accident occurs, then the insurer is not liable to pay compensation to the claimant. However, if the policy is cancelled after the accident happens, then he is so liable. But, in the latter category of cases, the insurer is entitled to recover the amount so paid to the claimant from the insured. It was observed that a contract of insurance between an insurer and an owner of the offending vehicle includes reciprocal promised by both the parties. In such view of the matter, the owner of the offending bus (insured) was directed to pay back the amount of the award to the insurer along with interest thereon. [SBI Insurance Co. v. Madhubala, 2019 SCC OnLine Bom 639, decided on 15-04-2019]

Case BriefsHigh Courts

Kerala High Court: The Bench of R. Narayana Pisharadi, J. quashed criminal proceedings against a person accused of cheating a bank holding that the case against him would be an abuse of process of the Court.

Petitioner herein was a customer of Bank of Baroda for many years. He introduced accused’s 1 to 3 to the said bank to enable them to open an account therein. Subsequently, the accused used credit/purchase facility given to them by the bank and obtained approximately Rs 1 crore from it. It was alleged that the accused had hatched a conspiracy to cheat the bank and cause loss to it. A case was registered against the accused and the petitioner under Section 120B, and Sections 420 and 406 read with Section 34 of the Penal Code, 1860. The instant petition was filed under Section 482 of the Code of Criminal Procedure, 1973 requesting quashing of proceedings against petitioner.

The Court noted that the only allegation against the petitioner was that he introduced accused to the bank to enable them to open an account. He did not falsely misrepresent the bank; there was no material indicating any transaction between the petitioner and other accused. No material was produced by the prosecution to prove that the introduction of accused to the bank, by the petitioner, was part of a conspiracy to cheat the bank. Therefore, no question of dishonest misappropriation of any amount by him arose.

It was held that it is a normal banking practice that a person who wants to open an account in a bank will have to get himself introduced by another account holder in the same bank. The mere act of introducing a person to a bank to enable such person to open an account in the bank, without anything more, does not attract the offence of cheating punishable under Section 420 IPC against the person who makes the introduction, even when the person introduced by him subsequently commits an act of cheating against the bank. Reliance in this regard was placed on Manoranjan Das v. State of Jharkhand, (2004) 12 SCC 90.

In view of the above, the petition was allowed. [K.J. Hubert v. Sub Inspector of Police, 2019 SCC OnLine Ker 1122, Order dated 04-04-2019]

Case BriefsHigh Courts

Kerala High Court: The Division Bench of K. Surendra Mohan and A.M. Babu, JJ. dismissed an appeal filed by a bank and concluded that deposit collectors, who act as agents of the bank, are ‘employees’ for the purpose of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).

The instant appeal was filed assailing dismissal of a petition challenging order of Regional Provident Fund Commissioner whereby deposit collectors of the appellant bank were held to be persons to whom the EPF Act would apply, and accordingly, contributions were directed to be paid in respect of such employees.

The question herein was that whether contributions under the EPF Act is due or payable in respect of the commission that is paid to deposit collectors.

Mr M.R. Anison, learned counsel on behalf of the appellant submitted that deposit collectors are not ‘employees’ under the EPF Act. Therefore, no contributions under the EPF Act were either due or payable in respect of such employees.

The Court relied on Indian Banks Assn. v. Workmen of Syndicate Bank, (2001) 3 SCC 36 where it was held that deposit collectors are covered under the definition of ‘workmen’ in the Industrial Disputes Act, 1947. It was opined that commission paid to deposit collectors depends upon the terms of the agreement entered into between the bank and deposit collectors. An agent is paid commission at the rate or rates determined by the Board of Directors of the bank from time to time. Therefore, commission so paid to the deposit collectors constitutes their wages.

In view of the above, it was held that there was no infirmity in the impugned order.[South Malabar Gramin Bank v. Regional Provident Fund Commr., 2019 SCC OnLine Ker 843, Order dated 27-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Justice V.K. Jain (Presiding Member) set aside the order of District Forum and State Commission and set aside their orders holding a national bank liable for returning educational certificates of the complainant.

Respondent herein had taken a loan from the petitioner bank under Pradhan Mantri Rozgar Yojana (PMRY) Scheme in 1984. He stated that he had deposited his educational certificates with the bank on the assurance that after repayment of the loan, the said documents would be returned to him. After repayment of the loan, respondent approached the bank for return of his original documents; but the same were not returned to him. Being aggrieved, he approached District Forum by way of a consumer complaint. District Forum allowed the complaint, and the bank’s appeal against the said order was dismissed. Thus, the bank approached filed the instant revision petition.

The Commission noted that no documentary proof of the alleged deposit had been filed by the respondent. Petitioner, being a nationalized bank and respondent being an educated person, it was difficult to accept that he deposited such important documents with the bank, without even taking an acknowledgment from it. Moreover, no evidence had been led by the respondent to prove that the submission of such documents was necessary under rules of the bank or PMRY Scheme.

In the absence of any evidence, it was opined that the view taken by the fora was perverse, and therefore the impugned orders could not be sustained.[Allahabad Bank v. Subhash Kumar Mittal, 2019 SCC OnLine NCDRC 25, Order dated 01-03-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): The Bench comprising of R.K. Agarwal, J., M. Shreesha, Member, dismissed the revision petition filed against the order of Haryana State Consumer Disputes Redressal Commission.

The respondent had purchased an insurance policy from Oriental Insurance Company which was valid till 28-12-2015, however, the respondent had requested for renewal of the said policy and subsequently, the petitioner-bank had deducted a sum of Rs. 4,726/- from respondent’s account for preparing a draft in favour of the insurance company. The draft was not submitted to the insurance company and hence the policy expired. Thereafter, petitioner’s wife met with an accident and the petitioner had to spend Rs. 3,50,000/- for his wife’s treatment.

The Commission, in this case, observed that the fact about the existence of the demand draft was not contested by the petitioner-bank, neither it was denied that they had deducted Rs. 4,726/- from respondent’s account. Had the draft been deposited in time, the policy would have been renewed and the expenses incurred by petitioner would have been covered by the policy.

The Commission held that since the petitioner-bank had deducted the amount and also prepared the draft but did not give it to the insurance company, this amounted to deficiency in services on the part of the petitioner bank. The Commission upheld the order of the state commission, directing petitioner to pay Rs. 3,10,000/- to the respondent as compensation on account of deficiency of services. [Oriental Bank of Commerce v. Rajesh Kumar,2018 SCC OnLine NCDRC 307, order dated 30-07-2018]

Case BriefsHigh Courts

Delhi High Court– While deciding a case wherein the issue involved was whether a person who is proposed to be classified as a wilful defaulter by a Bank / FI and who, in accordance with the Master Circular dated 01.07.2013 issued by the RBI, has availed of opportunity to be heard by Grievance Redressal Committee (GRC) of the said bank/FI to oppose such a proposal, has a right to be represented by an advocate in the said hearing, the division bench of G. Rohini CJ and R.S. Endlaw J held that the restriction placed by the GRC of the appellant banks to appearance of advocates on behalf of borrowers before it, not by any law but otherwise, cannot be sustained and is bad. The Court further observed that the opposition of the GRC of the appellant bank regarding appearance is based on an illogical presumption that the borrower’s advocate might delay the proceedings before it, which has no basis. The Court also pointed out that the members of GRC can always control and guide the proceedings before it and as per the exigencies limit the time of hearing.

In the instant case, the appellants had challenged the high court order which had allowed lawyers to represent the borrower in the proceedings before GRC to decide whether the borrower can be held wilful defaulters. In order to reach the decision the Court also dealt with the issue as to whether the GRC can be called a ‘Tribunal’ within the meaning of clause (ii) of Section 30 of the Advocates Act.

Relying on a catena of cases like, ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd. (2010) 10 SCC 1 and Peerless General Finance & Investment Co. Limited v Reserve Bank of India (1992) 2 SCC 343, the Court stated that GRC satisfies the test of having been constituted by the State and thus can be held to be a Tribunal within the meaning of Section 30 of the Advocates Act. The advocates would have a right to practice before it and axiomatically the borrower before such GRC will have a right to engage and avail the services of an advocate. [Punjab National Bank v. Kingfisher Airlines Limited,  2015 SCC Online Del 14128, decided on 17.12.2015]