IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE M.L.JOSEPH FRANCIS WEDNESDAY, THE 16TH DECEMBER 2009 / 25TH AGRAHAYANA 1931 AS.No. 764 of 1994(A) -------------------- OS.74/1985 of ADDL.SUB COURT, ALAPPUZHA .................... APPELLANT- 1ST DEFENDANT: -------------- M. ABDUL WAHAB, SON OF LATE MOHAMMED EBRAHIM, VALIKKAL HOUSE, KANJIRAPPALLY P.O. BY ADV. SRI.B.KRISHNA MANI RESPONDENTS - PLAINTIFF AND 2ND DEFENDANT: --------------- 1. THE KERALA FINANCIAL CORPORATION VELLAYAMBALAM, TRIVANDRUM REPRESENTED BY ITS DEPUTY MANAGER (LEGAL) 2. D. KRISHNANKUTTY, S/O. DAMODARAPANICKER FORMER BRANCH MANAGER, THE KERALA FINANCIAL - DIED CORPORATION, ALLEPPEY, RESIDING AT T.C. NO. 11/132 (4), NANTHANCODE, TRIVANDRUM APPEAL IS DISMISSED AS AGAINST THE 2ND RESPONDENT, WHO IS REPORTEDLY DEAD AS PER THE ORDER DTD. 8.7.09. BY ADV. SRI.M.PATHROSE MATTHAI, SR. ADVOCATE FOR R1. SRI.P.G.PARAMESWARA PANICKER THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 14/12/2009, THE COURT ON 16/12/2009 DELIVERED THE FOLLOWING: K. M. JOSEPH & JOSEPH FRANCIS JJ., - - - - - - - - - - - - - - - - - - - - - - - - - - - - A. S. NO: 764 OF 1994 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 16th Day of December, 2009. JUDGMENT Joseph Francis J., This appeal is filed by the first defendant in O.S. 74 of 1985 on the file of Sub Court Alleppey. The first respondent herein is the plaintiff and the second respondent is the second defendant in that suit, which was filed on realisation of misappropriated amount. 2. The facts of the case are briefly as follows: Plaintiff is a Corporation established under the State Financial Corporation Act with its Head Office at Trivandrum and Branch offices at other places, including Alleppey. Smt. M. Syamala Devi, Deputy Manager (legal) who has signed and verified this plaint was competent to sue and recover all amounts due to the plaintiff. Defendants 1 and 2 were employed under the plaintiff at its Alleppey Branch. The 2nd A.S . NO: 764 OF 1994 :2: defendant was the Branch Manager and 1st defendant was the Assistant under the 2nd defendant during the period from 6.2.1981 to 27.8.1983. The 1st defendant was the Assistant in charge of cash and all other monies received in the Branch Office at Alleppey and he was to receive the cash and other remittances from the customers and to issue receipts, signed by the 2nd defendant - Branch Manager. He was the custodian of the cash and other remittances in the Canara Bank, Alleppey either on the date of receipt itself or on the next working day. It was also the duty of the 1st defendant to keep the necessary accounts and registers properly. The 2nd defendant, as Manager, was to sign the receipts for the cash and other remittances received at the Branch Office, after satisfying about the remittances; to check the accounts and registers, and to see that the amounts received are duly and promptly remitted to the Bank. Both the defendants were jointly and severally liable to account to the plaintiff for all the monies received at the Branch office at Alleppey. During the period from 6.2.1981 to 27.8.1983, several amounts were received in the Branch Office from time to time from the plaintiff's customers, on account of the various loan accounts were not A.S . NO: 764 OF 1994 :3: promptly remitted into the Bank account of the plaintiff. There are cases of delayed remittances, short remittances, and non-remittances. After retaining the cash received from several days, without remitting them in the Bank, random remittances were also made. By this process, huge amounts were misappropriated by the 1st defendant, and or by the defendants jointly by colluding with each other. Both the defendants are jointly and severally liable for the amounts misappropriated, by their unauthorised and irregular actions, in violation of the rules and regulations. Even in case the entire amounts were misappropriated by the 1st defendant, himself, the 2nd defendant was equally liable to the plaintiff, along with the 1st defendant, since the misappropriation were possible only because of the negligence and dereliction of duty by the 2nd defendant. From out of the amounts received at the Alleppey Branch, during the period from 30.12.81 to 5.3.83, as per the receipts and the cash book, an amount of Rs.83,338.85 received was not remitted in the Bank. But an amount of Rs.23,393/- has been remitted in the Bank at random. It can be seen that an amount of Rs.59,945.85 which has been received, was not A.S . NO: 764 OF 1994 :4: remitted in the Bank during the said period. The 1st defendant, or the defendants jointly have fraudulently and dishonestly misappropriated the said amount, and have committed fraud. The plaintiff corporation is a financial institution, giving loans for industrial purposes and the normal rate of interest charged is 15.5% p.a., with half yearly rests on the 1st of January and July every year. The plaintiff has been deprived of the use of the misappropriated amount for lending purposes, and hence the plaintiff is entitled to reliase the amount with interest at the rate of 15.5% pa. with half yearly rests. The irregularities and misappropriation came to the notice of the plaintiff only 26.5.1983 when certain receipt irregularities were then reported to the Head Office. A thorough check of the accounts was made by the offices sent from Head Office for the purpose, and they have found that the total amounts of misappropriation is Rs.59,945.85 and later the 1st defendant was dismissed from the service of the plaintiff. While under suspension, the 1st defendant filed a voluntarily signed statement before the Financial Controller of the plaintiff on 11.11.83, stating that he has the sole responsibility for the missing of credits and he is ready to remit A.S . NO: 764 OF 1994 :5: the missing amounts to the plaintiff corporation in instalments. The original records are with Vigilance Department and hence photocopy was produced along with the suit. The 1st defendant later sent a demand draft dt.30.12.83 for Rs.1000/- being credit as missing credits. No other amount has been paid by the defendants. The 2nd defendant is still under suspension. The failure of defendant to pay the said amount with interest is the cause of action for this suit. The plaintiff filed suit for the amounts detected. The plaintiff reserved the right to sue or take further action in respect of any other amounts of misappropriation, if detected. The plaintiff prayed for a decree for realisation of Rs.94,415.47 with interest at the rate of 15.5% from the date of suit till date of realisation from the defendants and from their assets along with costs and just other equitable reliefs. 3. The first defendant filed a written statement contending that the suit is not maintainable under law. It is true that first defendant was working as Assistant in Alleppey branch and whenever cash was received by him on behalf of the branch it was remitted in the Canara Bank, Jetty Branch, Alleppey. The first defendant prayed for A.S . NO: 764 OF 1994 :6: production of the original receipts books of the relevant period by the plaintiff. It is incorrect to say that he was the sole custodian of the cash. As per the instructions of the Branch Manager the first defendant had to perform other duties outside the office, such as clearing the bills etc., which can be seen from the tour program of the first defendant. First defendant also prayed for production of tour program for that period. The balance sheet of plaintiff corporation was prepared annually and audited each year by competent chartered accountant. If there was any misappropriation it would have been detected at the time of audit. The first defendant was not responsible for non receipt of Rs.59,945.85 in the bank for the period from 30.12.81 to 5.3.83. He has not misappropriated the amount as alleged and the plaintiff was not entitled to get any amount. Details of remittance in the branch office, were submitted to the Head Quarters of plaintiff corporation and even though the vigilance department was investigating the matter for the last three years, they were not able to trace out such a misappropriation. The requisite enquiries to be conducted after furnishing of the charges to the 1st defendant has not been conducted before he was dismissed A.S . NO: 764 OF 1994 :7: from service. The first defendant has not given voluntary statement on 11.11.1983. The another statement was obtained from the first defendant by the Financial Controller, at the Alleppey Branch by inducement, threat and promise. The first defendant was informed by the Financial Controller and the second defendant that in case he admits the sole responsibility for the missing amount and makes a token remittance, he will be absolved of all the responsibilities of the missing amount. The second defendant informed first defendant that if first defendant makes the token remittance second defendant will remit the remaining amount. The suit was barred by limitation. The averments are without disclosing source of the date of knowledge of the fraud. No prayer of the plaintiff was legally allowable. Therefore the first defendant prayed for dismissal of the suit. 4. The second defendant filed a written statement contending that the suit is not maintainable under law. The averments in the plaint that the receipts received by the first defendant were always signed by the second defendant is incorrect. The Junior Executive in charge of office superintendent or Assistant in charge of cash, depending on availability A.S . NO: 764 OF 1994 :8: used to sign in the receipts as second defendant would be engaged in field work. The exclusive responsibility of receiving cash etc, bestowed only with the first defendant. The maintenance of cash books was prescribed only on 1.9.1983 vide circular No.Acts 241/83 enabling the superior officer to verify the details of day to day cash transactions in the branch offices. He has not colluded with the first defendant. The second defendant has not committed any fraud. He was also not liable to pay any amount or interest. The second defendant prayed for dismissal of the suit. 5. In the sub court PW1 to PW3 and DW1 and DW2 were examined and Exts. A1 to 18, B1 and B2 and C1 to C12 were marked. The learned Sub Judge decreed the suit and the plaintiff was given a decree for realisation of Rs.94,415.47 with interest at the rate of 15.5% per annum from the date of suit till date of realisation from the defendants alongwith costs. Against that judgment and decree the first defendant filed this appeal. During the pendency of this appeal the 2nd respondent/the 2nd defendant died and no legal heirs were impleaded and therefore the appeal against 2nd respondent was dismissed as A.S . NO: 764 OF 1994 :9: abated. 6. We heard the learned counsel for the appellant and learned counsel for the first respondent. 7. The learned counsel for the appellant submitted that the suit is one for realisation of money and as such the date on which the plaintiff came to know the alleged irregularity cannot be the basis for determining that question of the limitation. The learned counsel for the appellant further submitted that the alleged misappropriation is within the period commencing from 30.12.81 to 5.3.83 and the annual audit for the alleged period has not detected any misappropriation and therefore the court below went wrong in overlooking the same. Whereas the learned counsel for the first respondent supported the judgment. 8. In the plaint Rs.59,945.85 is shown as the amount misappropriated and Rs.34,469.62 is claimed as interest at the rate of 15.5% till 30.10.85, less Rs.1,000/- remitted by the Demand Draft on 4.1.84 and thus the plaintiff claims Rs.94,415.47. 9. In the plaint, it is alleged that the cause of action for the suit A.S . NO: 764 OF 1994 :10: arose on 26.5.83 when the fraud and misconduct of defendants were initially known to the plaintiff. PW1 - the Deputy Manager (Legal) and the plaintiff corporation deposed that the fact of non-remittance by the first defendant was known only on 26.5.83. The first defendant is examined as DW1. DW1 admits in cross-examination that the irregularity of non-remittance of the amount in the bank came to the knowledge of the plaintiff on 26.5.83 when the second defendant reported the matter. Therefore it is clear that the plaintiff came to know about the misappropriation only on 26.5.83. The plaintiff filed the suit on 31.10.85 within 3 years and as such the learned Sub Judge is justified in finding that the suit is not barred by limitation. 10. The testimony of DW1 shows that misappropriation came to the knowledge of the plaintiff on 26.5.83 when the second defendant reported the matter to the plaintiff. Therefore it is evident that inspite of annual audit, the irregularity was not detected at the proper time. DW1 admits that in Page No.24 of Annual Report for the year 1983-84 of the plaintiff corporation which is marked as Ext.A16(a), it is stated that an amount of Rs.59,945.85 was not remitted in the bank and that A.S . NO: 764 OF 1994 :11: statement is correct. DW1 deposes that he has no dispute about that figure but his dispute is whether the amount is collected by him or not. Ext.A10 is the written reply given by the first defendant before the Managing Director of the plaintiff corporation against the memo of charges and allegations against the first defendant. In Ext.A10, the first defendant admits that he had misappropriated the amount. DW1 admits that Ext.A10 is written in his own hand writing. Ext.A3 is the letter dated 31.12.83 written by the first defendant to the Managing Director of the Plaintiff corporation stating that he is sending a Demand draft for Rs.1,000/- drawn in State Bank of Travancore in favour of plaintiff corporation and asking to credit the amount to the missing amount of Alleppey branch during his tenure as cashier. Ext.A14 is the statement dated 11.11.83 given by the first defendant before Financial Controller on account of missing remittance. In Ext.A14 it is stated by first defendant that he has the sole responsibility and that he was in charge of the cash and he used to utilise the cash received at the office for personal purposes and that he is ready to remit the missing amount in instalments. As observed by the learned Sub A.S . NO: 764 OF 1994 :12: Judge the burden is on the first defendant to prove that the admissions made by him in the above documents have been initiated by threat or promise. But the first defendant has not adduced any independent evidence to discharge his burden. In view of specific admission by first defendant in Ext.A10, A14 and A3 regarding the suit liability the learned Sub Judge is justified in decreeing the suit against the first defendant. It has come out in evidence that even where the entire amount was misappropriated by the first defendant himself, the second defendant is equally liable to the plaintiff along with the first defendant as the misappropriation was possible only because of the negligence and dereliction of duty of the second defendant. Therefore, the second defendant is jointly and severally liable for the suit amount along with the first defendant. Since the liability does not arise out of a commercial transaction, interest of 15.5% awarded from the date of the suit has to be reduced to 6%. Accordingly this appeal is allowed in part. The judgment and decree in O.S. No: 74 of 1985 on the file of Sub Court Alleppey is modified and the plaintiff is allowed to realise an amount of 94,415.47 A.S . NO: 764 OF 1994 :13: with interest at the rate of 6% per annum from the date of the suit till the date of realisation and cost from the defendants and their assets. Parties are directed to suffer their respective costs in this appeal. K. M. JOSEPH JUDGE, M. L. JOSEPH FRANCIS, JUDGE. dl/