Indian Bank vs Godhara Nagrik Coop.Credit ...

They deposited certain amounts in cash in fixed deposits of Banks wherefor Fixed Deposit Receipts (FDRs) were to be issued. Such deposits were made through some so-called Commission Agents of the Banks on payment of huge commission which is ordinarily not allowed by the Nationalized Banks.

3. Applications for grant of loans by various persons were filed before the prescribed authorities of the banks on the basis of the said FDRs. Allegedly a large number of officers of the banks were involved in a scam whereby unofficial investments of the said amount were being made.

4. As and when the FDRs matured, the investors requested the Banks for their encashment. The banks refused to accede thereto stating that the amount under the FDRs had already been paid by way of loans and, thus, no further amount was payable. It was contended that a fraud on the banks has been practiced to which the depositors and the officers of the banks were parties.

A Division Bench of the said Court in an intra court appeal preferred thereagainst, however, stayed only the operation of some of the clauses of the said order. The Committee, however, was allowed to function.

7. The Committee submitted its report. It was found that principally the officers of the banks were involved in the matter of commission of the alleged fraud on the Banks.

However, by an order dated 9th May, 2005, upon hearing the counsel for the parties, `Leave' was granted, as a result whereof all the contentions of the parties are now open.

Respondents are cooperative societies. They at the instance of some agents or the middlemen thought it expedient to invest in Fixed Deposit Receipts (FDRs) in Bank of Baroda and Indian Bank. The modus operandi appears to be that the brokers/intermediaries lured a few cooperative banks/credit societies for placing deposits with the branches of Bank of Baroda/Indian Bank in and around Surat as also at Bharuch wherefor a handsome commission/incentive ranging from 3.8 to 25 per cent used to be given. The Cooperative Societies themselves did not approach the Bank. All acts were done through the agents. The documents seem to have been sent through brokers who also delivered to them the Maturity Value Certificates in lieu of original FDRs or the FDRs/Xeroxed copies, in addition to delivery of drafts for commission. The commission used to be paid in cash. In some cases, the original FDRs were retained by the banks. However, the original documents sent by the cooperative societies to the 14 banks in some cases were not available in the offices of the bank but a different set of documents were replaced in the files. Loans were raised against FDRs on the basis of such documents mainly for further investment by private individuals. Funds were withdrawn in cash either directly from their current accounts or by issuing cheques in favour of some individuals who reportedly discounted their cheques.

Respondents - Cooperative Societies prayed for issuance of a writ of or in the nature of mandamus or any other appropriate writ, order or direction quashing and/or setting aside the letter at Annexure A dated 2.4.98 of respondent No. 1. It was furthermore prayed that the respondent Nos. 1 and 2 be directed to honour the FDRs copies of which were annexed thereto with the interest accrued thereon and to restrain the respondent No. 1 to appropriate the proceeds of the said FDR and also be further directed to 15 honour the FDR with interest accrued thereon on such terms and conditions which the Hon'ble Court deems fit.

II. The member from Bank of Baroda would participate in the meeting of this Committee only when the cases relating to the Bank of Baroda are taken up and the member from the Indian bank shall participate in the meeting of the Committee only when the cases relating to Indian Bank are taken up.

IV. This Committee shall examine each and every case on its own merits with reference to the records desired to be made available and will give its findings with regard to the amount due and payable to the concerned petitioners/parties and the rate of interest. The Bank of Baroda and 16 Indian Bank shall inform the Committee in writing about the undisputed amount with full details.

VII. The Committee shall decide all these cases within a period of three months from the date the certified copy of this order is produced before the Dy.

VIII. It will be open for the petitioners/parties to agitate their grievance, if any, against the orders which may be passed as a result of the findings of the Committee constituted under this Court's order as aforesaid.

IX. These directions are in addition to and not in derogation of any legal remedy, which any party may seek after the report of this Committee.

X. For the time being, the concerned Banks, i.e. Bank of Baroda/Indian Bank shall disburse the undisputed amount, if any, with interest at the rate of Savings Bank Account to the respective petitioners/parties within 15 days from the date the copy of this order is produced before the concerned Bank. The payment shall be made through Demand Drafts in the name of the petitioners Societies/Banks/Depositors. However, if the Committee decides any rate of interest higher than the Savings bank Account, the consequences shall follow."

Whereas the Chairman and Regional Director, RBI were of the opinion that the banks should refund the disputed amounts of deposit to the depositors; other two members representing the Banks were of the view that the return of the deposits may amount to double payments to the depositors.

18. But it is, in our opinion, not a public interest litigation in that sense of the term. The report, however, was not unanimous. The opinion of the Committee was a divided one on the crucial issue. Two members of the Committee were of the opinion that whether the amount deposited by the cooperative banks was received back by them or not, was yet to be ascertained. We are, therefore, of the opinion that it cannot be said that the fact finding body, assuming that the same could be constituted, made such recommendations which could be accepted by the Court without going into the merit thereof. It is also not a case where any mandatory relief could be granted in favour of the respondents.

20. Answers thereto may be difficult to find but it is not a wholly impossible task. We think that the appellant Bank being a `State' within the meaning of Article 12 of the Constitution of India with the assistance of officer(s) of the Central Bureau of Investigation should make all attempts to ascertain as to which of the cooperative societies/cooperative banks are in no way involved with the scam, and subject to such precautions as may be found necessary to be taken, release the amount in their favour.

21. In any event, the quantum of the amount which all the depositors would have otherwise received, in the event their investment in FDRs is found to be genuine, should be informed thereabout. Once the liability of the bank is determined, the bank may invest the said amount in its own account and issue fresh FDRs therefor. Whereas the bank may keep the original FDRs with itself, it may issue the duplicate copies thereof to the eligible cooperative bank. Such an exercise should be completed within a period of four weeks from date.

22. In the event, the cooperative society intending to avail loan facilities from the banks for running their business, may approach them which may apart from usual conditions release the same on a further condition that the amount of FDR would remain with them and on that basis, loans may be 30 granted of such amount. The usual precautions in regard thereto may also be taken by the Bank(s).

23. We, while saying so, do not intend to lay down any law. These directions should not be treated to be precedent. We are issuing these directions keeping in view that the factual scenario obtaining in the case and that non-release of the amount is likely to enure hardships that may be faced by the cooperative societies. We would also direct the criminal court to dispose of the criminal cases pending before them with utmost expedition. These appeals are allowed with the aforementioned directions. There shall, however, be no order as to costs.

May 16, 2008