Post Office/Bank Can Be Held Liable For Frauds Or Wrongs Committed By Its Employees: Supreme Court
Dishonest acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the affected person.
On Monday, the Supreme Court held that once it is established that fraud or any wrongful act was perpetrated by an employee of a post office during the course of their employment, the post office would be vicariously liable for the wrongful act of such employee. The Apex Court clarified that the post office is entitled to proceed against the concerned officer, but the same would not...
On Monday, the Supreme Court held that once it is established that fraud or any wrongful act was perpetrated by an employee of a post office during the course of their employment, the post office would be vicariously liable for the wrongful act of such employee. The Apex Court clarified that the post office is entitled to proceed against the concerned officer, but the same would not absolve them from their liability.
A Bench comprising Justices L. Nageswara Rao, Sanjiv Khanna and B.R. Gavai allowed an appeal challenging the order of the National Consumer Disputes Redressal Commission ("NCDRC"), which held that filed against postal department authorities cannot be held vicariously liable for the fraud committed by a postal agent with respect to enashment of Kisan Vikas Patras.
"...the post office/bank can be held liable for the fraud or wrongs committed by its employees", the Supreme Court observed in appeal against the NCDRC order.
"Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others. Such acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties", the Supreme Court held(Pradeep Kumar And Anr. v. Post Master General And Ors).
Factual Background
During the period 1995 to 1996, the appellants purchased Kisan Vikas Patras ("KVP") valued at Rs. 32.60 lakhs. In February, 2021, the appellants approached the Post Master, Head Post Office Chowk, Lucknow, requesting them to transfer the KVPs to the Chowk Post Office, Lucknow. The Post Master suggested that the transfer process being too cumbersome, the appellants could avail the services of one Rukhsana, an agent appointed by the State of Uttar Pradesh.
On 03.03.2000, as per Rukhsana's instructions, the appellants signed original KVPs on the backside and handed over the same along with Monthly Income Scheme passbook to her, against which she provided a document confirming receipt of the KVPs. In June, 2000, the appellant came to know that Rukhsana had been arrested for cheating several investors. Upon enquiry, it was learnt that she had encashed the appellants' KVPs and pocketed an amount of Rs. 25,54,000, which was paid to her in cash by Yahiyaganj and Lal Bagh Post Office. It came to the knowledge of the appellants that M.K. Singh, Sub-Post Master of Yahiyaganj Post Office was working hand in gloves with Rukhsana. Eventually, the appellants filed a complaint under the Consumer Protection Act before the NCDRC seeking direction for payment of Rs. 25,54,000, interest @ 18% per annum along with compensation for mental agony, interest for the same and litigation expenses. The NCDRC allowed the complaint against Rukhsana and directed her to pay Rs. 25,54,000, interest @ 9% per annum along with compensation of Rs. 1,00,000 and Rs. 10,000 as litigation expenses. But, NCDRC found that there was no involvement of the officers of the post office who had been arrayed as respondents in the complaint before it.
Analysis by the Supreme Court
Negligence by officers of Post Office
The Court observed that as Rukhsana had not entered appearance or contested the order of NCDRC before the Apex Court, the same had attained finality for her.
It was noted that the KVPs were not presented for encashment at the Post Office where it was issued. Under Rule 11 of the Kisan Vikas Patra Rules, 1988 it could be so encased only after duly verifying that the person presenting the KVPs for encashment were entitled to do so. Under Rule 9, surrendering identity slip at the time of discharge is mandatory. But, the Court observed that there was no document on record to suggest that the concerned officials had complied with the said Rules. On perusal of Sections 8 and 78 of the Negotiable Instruments Act, 1881 ("NI Act"), the Court observed that though the KVPs, which are negotiable instruments, were in possession of Rukhsana, she had no right to recover the amount and therefore, was not a 'holder'. As per Clause 23(1) of the Post Office Bank Manual, in case a holder seeks to encash KVPs from a Post office other than the issuing one, they have to provide an application with requisite details appended with their signature. No such application was filed. Under Clause 23(2), the post master is to verify the signature and satisfy himself about the authenticity of the certificate and title of the holder. Considering the relevant provisions of law and material on record, the Court was of the opinion that payment of Rs. 25,54,000 made in cash to Rukhsana by the respondent officers of the post office was an act of negligence, especially when notification dated 18.08.1989 required the payment to be made in cheque. Further, it opined that it was also a case of fraud. The Court held that the conduct of the officials was in violation of Section 82 of NI Act, which stated that the maker of a negotiable instrument is discharged of their liability upon payment, but Section 10 requires such payment to be made in good faith and without negligence.
Disagreeing with the NCDRC finding, the Apex Court observed :
"The finding overlooks that no one would like to avail services of a stranger or an agent if the work, that is, transfer of KVP certificates, could be otherwise handled and done with ease. Further, no one would like to lose money to a stranger. Necessarily, we would accept that the appellants had remained in touch with Rukhsana but were given the impression that the exercise is complex and would take time. Further they had belief that the post office would take care of their interest, act in good faith and would not be negligent."
Contributory Negligence
Referring to Kerala State Co-operative Marketing Federation v. State Bank of India and Ors. (204) 2 SCC 425 and Canara Bank v. Canara Sales Corporation and Ors. (1987) 2 SCC 666, the Court noted that when a bank encashes a forged cheque, it cannot counter the claim of the customer with defence of negligence. Negligence can be pleaded by the bank only when it establishes adoption, estoppel or rectification on the part of the customer.
Vicarious Liability
Citing State Bank of India v. Smt. Shyama Devi (1978) 3 SCC 399, the Court held that when acts of fraud are committed by employees of a post office during their course of employment, the post office would be vicariously liable and the aggrieved customer would have the right to proceed against it. The Court stated -
"Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties."
In the facts of the case the Court held the officers of the post office to be jointly and severally liable to pay the maturity value of the KVPs along with interest, compensation and cost. In case of failure to pay the same within eight weeks, it directed additional interest to be paid on the compensation amount.
Case Name: Pradeep Kumar And Anr. v. Post Master General And Ors.
Citation: 2022 LiveLaw (SC) 139
Case No. and Date: Civil Appeal No. 8775-8776 of 2016 | 7 Feb 2022
Corum: Justices L. Nageswara Rao, Sanjiv Khanna and B.R. Gavai
Counsel for the appellant: Advocate-on-record Ms. Namita Choudhary; Advocates, Mr. Aditya Kr. Choudhary, Mr. Gurmehar Uaan Singh, Mr. Vaibhav Prasad Deo, Mr. Saurav Kumar
Counsel for the respondent: Advocate-on-record Mr. Gurmeet Singh Makker, Mr. Kedar Nath Tripathy; ASG (NP), Mr. Vikramjit Banerjee; Advocates, Mr. Nalin Kohli, Ms. Rukhmini Bobde, Mr. Rajan Kr. Chouraisa, Mr. Jitendra Mahapatra, Mr. A.K. Yadav.
Headnotes
Banking Law - Bank's Liability for acts of employees - What is relevant is whether the crime, in the form of fraud etc., was perpetrated by the servant/employee during the course of his employment. Once this is established, the employer would be liable for the employee's wrongful act, even if they amount to a crime. Whether the fraud is committed during the course of employment would be a question of fact that needs to be determined in the facts and circumstances of the case. (Para 38)
Negotiable Instruments Act, 1881 - Section 3- 'Banker' includes any person acting as a banker and any post office savings bank. In terms of this section, a post office savings bank is a banker under the NI Act. (Para 11)
Negotiable Instruments Act, 1881 - Sections 131 and 131A - The standard of care expected from a collecting banker does not require him to subject the cheque to a minute and microscopic examination, yet disregarding circumstances about the cheque, which on the face of it gives rise to suspicion, may amount to negligence on the part of the collecting banker. Further, the question of good faith and negligence is to be judged from the standpoint of the true owner towards whom the banker owes no contractual liability but statutory duty by these provisions - Allegations of negligence against the paying banker could provide no defence for the collecting banker who has not collected the amount in good faith and without negligence. (Para 20) [Kerala State Co-operative Marketing Federation v. State Bank of India (2004) 2 SCC 425 ]
Negotiable Instruments Act, 1881 - Section 13- Kisan Vikas Patra Rules, 1988 - Kisan Vikas Patras (KVPs) are negotiable instruments in terms of Section 13 of the NI Act - It cannot be said that the KVPs are simple bearer instruments payable to anyone who presents the same for encashment and discharge. (Para 12 , Para 29)
Negotiable Instruments Act, 1881 - Sections 15 and 16 - 'Indorsement', 'indorsee', 'indorser' and 'indorsement in blank' and 'in full' - Indorsement for the purpose of negotiation is made by the maker or holder of the negotiable instrument when he signs on the back or face of thereof, on a slip of paper annexed thereto or on a stamp paper for the purpose of negotiation. The person signing is called the indorser. If the instrument is signed by the indorser in his name only, it is an indorsement in blank. If the indorser also specifies the person to whom payment is to be made, the indorsement is said to be 'in full', and the person so specified is called the indorsee. (Para 12)
Negotiable Instruments Act, 1881 - Section 13- Different principles apply for discharge from liability when the negotiable instrument is payable to bearer or has been indorsed in blank, in which case payment must be made in terms of Section 10, whereas when the negotiable instrument is payable to order, the maker, acceptor or endorser would be discharged from liability when payment is made to the 'holder' of the instrument. (Para 14)
Negotiable Instruments Act, 1881 - Sections 8 and 78- Payment made to a person in possession of the instrument, but not entitled to receive or recover the amount due thereon in his name, is not a valid discharge. (Para 15)
Negotiable Instruments Act, 1881 - Section 8 - A holder means a person (i) entitled to possession of a promissory note, bill of exchange or a cheque, and (ii) entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in his name- The requirements of Section 8 are two-fold, and both requirements have to be satisfied. (Para 15)
Negotiable Instruments Act, 1881 - Section 10- Definition of 'payment in due course' - The requirement in Section 10 that the payment should be in both good faith and without negligence is cumulative. Thus, mere good faith is not sufficient. (Para 17)
Negotiable Instruments Act, 1881 - Section 10- General Clauses Act, 1897- Section 3(22) - Section 3(22) of the General Clauses Act which defines 'good faith' as an act done honestly, whether done negligently or not, is not sufficient to hold that the payment made was 'payment in due course' under the NI Act. (Para 18)
Negotiable Instruments Act, 1881 - Section 10- Definition of 'payment in due course' - Ascertainment of whether the act of payment is in good faith and without negligence is by examination of the circumstances in which payment is made. In other words, antecedent and present circumstances should not afford a reasonable ground for believing that the person to whom payment is made is not entitled to receive payment of the amount mentioned.9 While it would not be advisable or feasible to strait-jacket the circumstances, albeit value of the instrument, other facts that would raise doubts about the reliability and identity of the person entitled to receive payment and genuineness of the instrument in the payer's mind are relevant considerations. (Para 17)
Banking Law - Bank's Liability for acts of employees - Acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Post office / bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties. (Para 37)