THE HON’BLE SRI JUSTICE N.R.L.NAGESWARA RAO W.P.24125 OF 2001 ORDER The deceased-first petitioner has made certain fixed deposits with the 3rd respondent. He has cancelled fixed deposits vide fixed deposit No.8581 for Rs.9,98,000/- and fixed deposit receipt No.8582 for Rs.14,77,444/- and another fixed deposit receipt No.8583 for Rs.14,97,028/-, a total amount of Rs.39,72,492/- and a banker’s cheque was issued on 10-08-2001. The total amount deposited under the above receipts is Rs.40 lakhs and some amount was forgone. The petitioner has got account with the 6th respondent and presented the banker’s cheques bearing Nos.020944, 020945 and 020946. The 5th respondent is an agent of the 3rd respondent for the purpose of representing at the time of clearance. The 3rd respondent was also permitted to participate as a sub-member. The 5th respondent is under an obligation to clear the banker’s cheque issued by the sub-member (3rd respondent). The 5th respondent has got current account of the 3rd respondent and having sufficient funds. But the cheques were dishonoured on the ground of “want of funds”. In case of cheques issued by the 3rd respondent itself, it does not require any such clearance and it applies only to cases where cheques were issued by the customers to the bank. The 5th respondent unjustly and illegally dishonoured the cheques on the ground that the sub-member did not participate in the clearing house for collection of the cheques concerned on the respective dates. The cheques were again presented and they were returned on the ground that the police department has blocked the account of the 3rd respondent. The petitioner has given a legal notice to the 5th respondent on 08-10-2001 and the 5th respondent claimed that under the terms of regulations of bankers clearing house, must have received the instruments from the 5th respondent daily and present back the instruments before 2.00 P.M on the same day. It was also pleaded that Krushi Bank stopped functioning from 13-08-2011. Thereafter, the 2nd respondent has passed orders for winding of the affairs of the 3rd respondent and the liquidator-4th respondent was appointed. The writ petition was filed challenging the initiation of the proceedings of the liquidation and also the action of the respondents in dishonouring the cheques. There were altogether four (4) prayers. During the course of arguments on 02-12-2010 the reliefs 1 and 4 concerning the liquidation proceedings and appointment of the liquidator were given up and only the action of the 5th respondent in returning the banker’s cheque un-paid as being violation of the constitutional right of the petitioner is contended and the action of the 4th respondent treating the amounts of the 3rd respondent as an asset of the 3rd respondent without paying the amounts covered by banker’s cheque as being violative. The 1st respondent has filed a counter disputing several of the allegations challenging the appointment of the liquidator etc., has been untenable. The writ petition is not maintainable. H.D.F.C Bank is not a public authority and there is no violation of any law and the jurisdiction under Article 226 of the Constitution cannot be invoked. It was further pleaded in Paras. 7 (iii) & (iv) of the Counter Affidavit as under:- “As regards the averments made in Para 3, it is submitted that after scrutiny of the books of account of the Co-operative bank, RBI in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, (AACS) issued certain operational directions to the Bank. The RBI monitored the performance of the bank by calling for statements and conducting meetings with the management of the bank. As such, there is no substance in the averments of the petitioner. It is submitted that the provisions relating to winding up and amalgamation contained in the Banking Regulation Act, 1949, are not applicable to Co-operative banks. It is submitted that the provisions relating to winding up of a Co-operative Society contained in he A.P. Co-operative Societies Act, 1964, are applicable to Co-operative banks. As per Section 115-B (I) of the A.P. Co-operative Societies Act, 1964, the Registrar of Co-operative Societies of Andhra Pradesh, with the previous sanction of the RBI in writing has been empowered to wind up the Co-operative bank. In this regard, RBI craves leave to refer to and rely on the judgement of the Hon’ble High Court of Andhra Pradesh in “B. Suryanarayana & others Vs Kolluru Parvathi Co-operative bank Limited” AIR 1986 AP Page 244. (iv) As regards the averments made in Para 4, it is submitted that the HDFC bank informed the RBI that between 10-8-2001 and 16-08-2001 several Banker’s cheques stated to have been issued by the Krushi Co- operative Bank were presented for clearing by the customers/public through various banks. The Krushi Co-operative Bank was supposed to collect all the cheques and submit them through HDFC Bank for clearing. HDFC Bank by its letter dated 16-08-2001 informed RBI that they have received 146 instruments (Bankers Cheques/Pay Orders) issued by the Co-operative Bank, however the Co-operative Bank has not collected the inward clearing Cheques. They further informed that the instruments are returned as Krushi Co-operative bank (sub-member) did not participate and has not collected the instruments (Banker Cheques/Pay orders). A copy of the said letter is filed herewith and marked as Annexure-II. As such, there is no illegality in returning the Banker’s cheques of the petitioner. It is further submitted that as per his own statement, the petitioner is one of the depositors of the Krushi Co-operative bank. The petitioner is not entitled to receive any payment in preference to the claim of the other depositors. All the depositors fail in the same category of unsecured creditors. The petitioner cannot be given any preferential treatment in law vis-à-vis other depositors. The petitioner has to sail in the same boat as the other depositors are sailing. The claims of all depositors including the petitioner will be settled by the Liquidator of the Co- operative bank as per law.” It was further pleaded that every sub-member is required to attend the clearance house transaction through the sponsored member. There are violations and the writ petition is to be dismissed. The 2nd respondent has filed a counter stating that he has acted as per the reports of the irregularities and the liquidation proceedings initiated are valid. The respondent Nos.3 and 4 filed a counter-affidavit denying the right of the petitioner questioning the validity of liquidation and further pleaded in para.7 of the counter as under:- “para.7: it is further submitted that in the entire affidavit the petitioner has not brought to the notice of the Hon’ble court the true facts of the case and in fact the petitioner he also obtained a loan from the 3rd respondent which is not yet repaid. It is further submitted that as on the date of presentation of the cheques said to have been issued by the erstwhile management of the 3rd respondent. In view of fraud, scam and cheating played by the chairman of the 3rd respondent, the Govt. of A.P. rep. by P.S. Mahankali, Hyderabad, regd a case vide FIR No. 156/2001 and thereafter CCS, CID, Hyderabad took up further investigation and freezed all the bank accounts of Krushi Co-op. Urban Bank Ltd., maintained by the erstwhile managing committee at various banks to avoid further misappropriation which resulted in the dishonour of cheques in question by 5th and 6th respondent and the same could not be cleared in view of freezure orders. The police officials seized the entire records of the 3rd respondent. It is submitted initially a special officer was appointed by the Govt. of A.P. through Co-op. Department to investigate into the matter and in view of the decision taken by the 1st respondent and 2nd respondent under A.P.C.S. Act, the respondent No.4 was appointed to 3rd respondent. The claim of the petitioner has to be considered along with the other depositors and they cannot be separately considered. The writ petition is liable to be dismissed. A reply affidavit was filed on 12-08-2002 by the petitioner contending that the allegations in para.7 of the counter of respondent Nos.3 and 4 are totally misleading and lacks clarity. The respondent Nos. 3 and 4 failed to give any particulars of the alleged loans which are remain unpaid. The liability is disputed. Subsequently, an additional affidavit is filed by the legal representatives on 27-08-2006 to direct the 5th respondent to pay the amount pertaining to the three (3) banker’s cheques pleading financial and family difficulties and also the legal right to get money. The 3rd respondent filed an additional affidavit on 12-09-2006. The substance of the above additional affidavit is that the Chairman and Directors of the 3rd respondent had taken deposits from general public promising higher rate of interest and also obtained huge loans personally and the bank collapsed on 11-08-2001 and the Chairman and Directors absconded; a criminal case was lodged on 15-08-2001. It was registered as a case in Cr.No.156 of 2001 by Mahankali Police Station under several penal sections. Thereafter, the Liquidator was appointed. It was further pleaded in Paras 6 to 8 of the additional affidavit as under:- “6.It is submitted that from the F.I.R. issued by the Mahankali P.S. Secunderabad it is clearly evident that the offence was occurred on 11.08.2001 itself and on which date the bank was closed and a complaint was lodged and registered on 15.08.2001. Therefore, the contention of the petitioner that the bank was functioning till 18.08.2001 is not correct. In fact, as stated above, the bank was closed on 11.08.2001 itself and in view of the closure of the Krushi Bank which being sub-member to the 5th respondent H.D.F.C. Bank failed to participate in clearing on 13.08.2001 onwards. In view of the non-participation of the sub-member bank i.e. 3rd respondent the H.D.F.C. Band has rightly returned all the instruments issued by the sub-member bank. It is relevant to submit that under the normal banking procedure the bankers cheques will be sent back to the issuing bank through clearing by main member and whereas the D.D.’s issued by the issuing bank / sub-member bank will be honoured by the main bank / member i.e. H.D.F.C. Bank. In the instant case the 3rd respondent has issued banker cheques which were dishonoured on 13.08.2001 due to non- participation of sub-member. It is submitted that the contention of the petitioner that the H.D.F.C. Bank was having Rs. 3 crores of Krushi Bank amount in their current account is not correct. In fact as on the date of the closure of the Krushi Bank only Rs.74,14,270-11 Ps. was lying in the current account of H.D.F.C. Bank. 7.It is further submitted that so far as the deposits aspects is concerned, as per the record available with the liquidator the 1st petitioner i.e. Late P. Hanumanthappa deposited Rs.40,00,000/- on 17.03.2001 in the form of 3 F.D.R.’s bearing Nos. 8582 (Rs.15,00,000/-) 8581 (Rs.10,00,000/-) and 8583 (Rs.15,00,000/-). It appears that the petitioner got the deposits cancelled prematurely on 10.08.2001 and got the banker cheques issued by the 3rd respondent bank which is a subject matter in this writ petition. On verification of the records of the Krushi Bank the liquidator now found that there are 3 F.D.R.’s with same numbers and same amount as stated above and as against which the late P. Hanumanthappa obtained loan on 23.06.2001 and as per the statement of account a sum of Rs.36,01,677/- is the total outstanding as on 16.10.2001 i.e. till the date of liquidation. In addition to these three F.D.R.’s Late Hanumanthappa was also having two more F.D.R.’s bearing Nos.8580 (Rs.15,00,000/-) and 8901 (Rs.20,00,000/-) which obtained on 17.03.2001 & 31.03.2001 against which also the petitioner has taken loan to the tune of Rs.28,50,000/- and the present outstanding balance is Rs.13,74,484/- as on 16.10.2001. Therefore the contention of the petitioner that Hanumanthappa is having only three F.D.R. which were cancelled just before the closure of the 3rd respondent bank and the cheques were dishonoured by the 5th respondent bank illegally, is not correct. 8.It is submitted that in view of the availability of the five F.D.R.’s in the name of Late P. Hanumanthappa against which the loan accounts are still outstanding in the books of accounts of Krushi Bank and out of which three F.D.R.’s as per the version of the petitioners got cancelled on 10.08.2001 itself. Once the petitioners claims that the F.D.R.’s are got cancelled on 10.08.2001 there cannot be same F.D.R.’s with similar numbers available in the 3rd respondent Krushi Bank. Therefore their appears to be some bogus and false transactions have been taken place before closure of the bank and these transactions got to be investigated by the concerned department. In fact, immediately after closure of the bank i.e. 11.08.2001, the police took the custody of the records of the bank and investigation is still pending. In this connection a case was registered in C.C.No.7 of 2001 and the same is pending before the Metropolitan Sessions Judge, Nampally, Hyderabad and in this case, as per the directions of the Court the liquidator submitted a detailed report with regard to the affairs of the Krushi Bank and the same is under consideration. A reply affidavit was again filed by the petitioners disputing the borrowing of the loans and out of the five (5) fixed deposits the first petitioner has withdrawn two of the fixed deposits and the cheques that were issued were duly encashed on 30-08-2001. Material is placed to support the same. Therefore, only three deposits for which the banker’s cheques were given are available. There is no liability to pay any loan to the bank. Therefore, from the pleadings available on record and the nature of relief confined in the writ petition the scope of the writ petition is very much limited. Before considering the rights of the petitioner, it is useful to refer that in WPMP No.30486 of 2001 dated 07-02-2002 the court has given a direction to the 4th respondent not to withdraw the amounts lying with the 5th respondent until further orders. Thereafter an application was filed to vacate the order of stay and this court in its order dated 27-11-2002 the interim directions preventing the 4th respondent from withdrawing the amounts lying with the 5th respondent are vacated. Thereafter the matter was carried in Writ Appeal being W.A.No.1999 of 2002 whereunder the following order was passed:- “Heard the learned counsel for all parties. The best course in the interests of parties would be to post the main writ petition itself for final hearing before the concerned honourable judge. We, therefore, direct the registry to post the main writ petition itself for final hearing by consent of all parties on 18-12-2002 in the supplemental list. We request the honourable judge to take up this matter on priority basis and dispose of the same, in view of the urgency expressed by all parties. In the meanwhile, i.e., till the disposal of the writ petition, the amount of Rs.39,72,492/- shall not be withdrawn by anybody. Parties may take further orders from the learned single judge. The Writ Appeal is disposed of accordingly. No costs.” The point that arises for consideration is:- Whether the petitioner can be permitted to take the money which was directed to be withheld? POINT:- Before considering the rival contentions, it is useful to note few facts. The first petitioner had the following five (5) deposits:- Date FDR NO. AMOUNT 17-03-2001 8580 Rs.15 Lakhs -do- 8581 RS.10 Lakhs -do- 8582 RS.15 Lakhs -do- 8583 Rs.15 lakhs 31-03-2001 8901 Rs.20 Lakhs F.D.R.Nos.8580 and 8901 were said to have been cancelled and banker’s cheque is said to have been issued on 09-08-2001 for Rs.34,82,204/-. The petitioner contends that the said amount was enchased whereas according to the 4th respondent on verification of the bank records it is found that the cheque is not presented for clearance. In fact it is not a matter for consideration in this writ petition. The subject matter of dispute relates to F.D.R Nos.8581, 8582 and 8583 and admittedly the pay orders were issued on 10-08-2001 for a sum of Rs.39,72,492/- by cancelling the fixed deposits. The cheques were presented on 13-08-2001 as 3rd respondent bank was closed on 11-08-2001. The cheques were returned by the 5th respondent on 14-08-2001 with an endorsement that “the sub-member not participated and not collected the inward presented for the day”. It has also transpired that a statutory inspection was taken up on 12- 08-2001 and one P.Ratnam was appointed for inspection and on 15-08-2001 the communication from R.B.I has come which is dated 14-08-2001. Thereafter as per the admitted facts a police complaint was given on 15-08- 2001 and subsequently the liquidation proceedings were initiated. Therefore, from the narration of the events, it is quite clear that the disputed banker’s cheques were issued on 10-08-2001 by cancellation of the F.D.R bearing Nos.8581, 8582 and 8583 even before the police complaint was lodged and even before the liquidation proceedings started and liquidator was appointed. Evidently, the banker’s cheques were not dishonoured on the ground of liquidation or by any instructions from the bank not to honour the cheques. The only reason for not clearing the cheques was the sub-member not participated and has not collected the inward presented for the day. The petitioner challenges the action of refusal of dishonouring or failing to clear the cheques is not valid and even if there are any instructions between the banks they will not affect the rights of the customer and when the amount is available and cheques were presented it is the duty to clear the cheques. The counsel for the writ petitioner relied upon a decision reported in B.O.I Finance Ltd., etc., Vs. The Custodian and others ([1]). A reading of the above judgment shows that the circulars and the procedure adopted by the banks is an internal correspondence and they were never made public and they will not be binding on the third parties and they cannot defeat the rights of the third parties. In fact at this stage it is not very much particular as to whether the action of the respondents in not honouring the cheques for non-participation of the member of the 3rd respondent is valid or not since by virtue of the orders of the Division Bench the amounts relating to the cheques were retained and thereby they are honoured and cleared. The learned counsel for the 4th respondent contends that in writ proceedings the relief prayed by the petitioner cannot be granted as there are complicated questions of fact and law and in such circumstances the parties have to approach the civil court. It is also his contention that there was a loan availed on the three(3) fixed deposits and it was not cleared and the bank has got a lein; as such the amounts cannot be paid. In fact the counter-affidavit filed by the respondents at the earliest point of time does not disclose the particulars of these loans and the amount of the loan but only at a later stage the particulars were given. There are no specific allegations to show that the first petitioner has colluded with any members of the bank and has played fraud. When a claim is sought to be defeated on such a fraud then the particulars have to be disclosed. Further more the record or the affidavit does not disclose as to with whose staff member or the official of the bank the first petitioner was in the leage and got an advantage. Before considering the aspects raised by the counsel for the petitioner, it is to be noted when ever the money was invested in a bank it is the duty of the bank to repay the amount covered by the fixed deposit and if there is any loan or lein it should be exercised within a reasonable time by proving the liability on the depositors. But the money invested by a depositor cannot be withheld for years on the pretext of a fraud by the members of the bank or by an argument that the recourse should be to a civil suit. It cannot be denied that enforcement of the lein and the recovery of the loans are all subject matter of law of limitation and there is no vested or unlimited right of the bank to continue the amount in deposit of the bank without payment. A loan has to be recovered within a period of limitation and if the statement filed by the respondents is to be taken into consideration as per the record, a loan was availed on the three (3) fixed deposits in the year 2001. Till this day and during the liquidation proceedings no action has been taken against the petitioners on such a loan. On the other hand as can be seen from the admission of the respondents in the memo dated 21-01-2001, it was mentioned as under:- “ it is submitted that the deceased petitioner filed the writ petition mainly aggrieved by the action of the respondent No.5 in returning the banker’s cheques, issued by the 3rd respondent, unpaid through respondent No.6. The case of the petitioner is that the 3rd respondent issued banker’s cheque for Rs.39,72,492/- on 10-08-2001 by cancelling the FDRs and the same was presented on 13-08-2001 and returned by the 5th respondent on 14-08-2001 on the ground that sub-member did not participate in the clearing. The 4th respondent filed counter that the petitioner has taken a loan against the FDRs and an amount of Rs.49,76,161/- is still outstanding. The liquidator from the records of the liquidated bank found the loan documents and due amount. On verification of the records it is further found that no steps have been taken, till today, for recovery of the loan amount against the borrower except framing surcharge against the ex-bank directors. In this connection the liquidator also made a complaint before the police on 27-09-2006 but so far as no action has been taken and criminal case is pending before the I MSJ Court against the ex-management of the Bank” In fact a copy of the complaint said to have been lodged with the police dated 27-09-2006 was filed as part of the material papers by the 4th respondent and it is useful to refer to the part of the complaint as under:- “I have also noticed that the signature of Sri P.Hanumanthappa on the first five deposit account opening forms, five deposit receipts entirely differs with the second set of five deposit account opening forms Five deposit receipts and five loan accounts of Sri P.Hanumanthappa. Photostat copies of two sets of the above mentioned deposit documents and one set of loan account documents were submitted before the Hon’ble High Court along with the additional counter affidavit filed by me. In view of the above, I request you to kindly investigate this matter to bring out the facts to take further action in this matter.” Therefore, it is quite clear that the liquidator himself has found that the signatures are varying from the first set of the deposit forms and the second set of deposit forms available. In fact in this complaint also there is no specific allegation of fraud or collusion of the first petitioner in creating the loan transaction and suppressing the loan and taking the F.D.R amount. When the F.D.Rs are cancelled naturally they will not be returned to the customer and they will be available to the bank only and the possibility of misuse is only with the bank. One more pertinent aspect to be considered is that the surcharge certificate was issued against the employee and no surcharge proceedings for recovery of the loan was given against the first petitioner or his legal representatives. Till this day no criminal action was initiated against the petitioners. Even though most of the liquidation proceedings were completed and the depositors were paid the money to a larger extent and even though this writ petition is pending for the last ten (10) years