Bank of Baroda vs Mr Ramesh C. Bhuptani & Ors

Ashok Menon, Chairperson

Bank of Baroda, the Appellant is in appeal impugning the judgment dated 14.11.2005 in O.A. No. 1661/2000 on the files of Debts Recovery Tribunal No.-III, Mumbai (‘DRT’ for short) aggrieved by the dismissal of the Original Application.

The aforesaid O.A. was filed by the Appellant originally before the High Court of Judicature at Bombay as Suit No. 4545 of 1998 for recovery of ₹1,40,27,189/- together with interest @ 17.09% p.a. The suit was transferred to the DRT on the constitution of the Tribunals.

The facts, in brief, are that the second defendant had forwarded cheques bearing No.320107 for ₹ 29,55,000/- and another cheque No. 320104 for ₹ 27,58,000/- favouring the first defendant’s proprietorship namely M/s. Sai Enterprises, drawn on the Bank of Baroda Panki Industrial Area Branch at Kanpur by M/s. Raymonds Industries for collection at the Appellant’s Ghatkopar Branch on 27.05.1996. After noting the details of the cheques in the OBC Register, the Appellant prepared a collection schedule bearing Nos. C-22474 and C-22475 for dispatching the same to their aforementioned branch at Kanpur on 28.05.1996. The first defendant came enquiring to the Appellant’s Branch about two cheques presented by him with the second defendant for collection. In order to avoid any delay in dispatching the cheques he requested the collection schedules referred to above together with the cheques to be handed over to him for dispatch to Kanpur. The Appellant paid the money with respect to the aforesaid two cheques to be credited to the account of the first defendant with the second defendant Bank vide Banker’s cheques bearing Nos. 387590 and 397589 dated 17.06.1996 for ₹29,47,605/- and ₹27,51,098/- respectively, after deducting their commission for collection, vide letter dated 16.06.1996.

After the realisation of the amount as per the two cheques above the first defendant issued a pay order No. 38043 dated 19.06.1996 for ₹13.50 lacs favouring the fifth defendant. Another pay order No. 38054 dated 20.06.1996 for ₹10 lacs was issued favouring the third defendant. A pay order No. 38051 dated 19.06.1996 for ₹75,000/- was issued in favour of the ninth defendant. Similar pay orders for ₹15 lacs and ₹5 lacs respectively were issued in favour of defendants Nos. 7 and 8. The third defendant realized the amount through his account with the fourth defendant. The fifth defendant encashed the amount as per the pay order issued in his favour through the sixth defendant Bank. The seventh defendant had realized the amount paid to them through their account with Bank of Baroda and the ninth defendant having an account with the tenth defendant Bank also realized the amount as per the pay order issued to him.

On 27.06.1996 the Appellant’s Branch at Ghatkopar received yet another cheque dated 22.06.1996 for ₹34,47,500/- through the Ravi Kiran Co-operative Bank Vikhroli for collection in favour of M/s. Sai Enterprises are drawn on the Appellant’s Kanpur Branch by the above-mentioned M/s. Raymonds Industries. This third cheque was sent by the Appellant to their branch at Kanpur on 28.06.1996 as per collection schedule No.3328, again through the first defendant. Telegraphic reminders were sent on 15th and 18/07/1996 to the Appellant’s service Branch at Kanpur. To their surprise, the Appellant found that the realisation advice received from the Kanpur branch was signed only by one officer contrary to the procedure of the bank requiring two officers to sign for the realisation of the advice above ₹50,000/-. On enquiry made with their branch at Kanpur, the Appellant learnt that their service branch at Kanpur had never received any cheques for collection and that they have not sent any advice dated 5th of July 1996 for ₹ 3,447,500/-. On further enquiries, it was revealed that the 1st defendant had opened his account with the 2nd defendant bank under introduction by one of its directors. The 1st defendant’s wife also had a savings bank account with the 2nd defendant bank. It was also revealed that the collection schedules numbers C-22474 and C-22475 reportedly received from the service branch at Kanpur containing the signatures of the bank officer named Mr R D Marothiya were found to be forged. It was also revealed that the account of Ms Raymonds Industries with the Kanpur branch of the Appellant bank was closed much prior to the issuance of the cheques. It is contended that the 1st defendant had fraudulently created documents and collected the sums as per the two cheques mentioned above. The 2nd defendant bank had also acted negligently by collecting the cheques from the 1st defendant and sending it for collection to the Appellant bank without proper verification. Defendants Nos. 1 and 2 have thus caused wrongful loss to the Appellant bank to the extent of ₹ 5,713,000 and have wrongfully gained the amount transferred to the account of the 1st defendant.

The Appellant had lodged a complaint with the Deputy Commissioner of police for economic offence in Bombay on 26/07/1996 and the said complaint is under investigation. The request made by the Appellant to the 2nd defendant bank to earmark the amounts transferred to the account of the 1st defendant was not done. That apart, pay orders for the amounts stated above were issued to defendants Nos. 3, 5 and 7 to 9 from the account of the 1st defendant and the said amounts have been realised by them through their banks. The 6th defendant bank expressed their inability to respond to the Appellant’s letter earmarking the amount that has been transferred to the account of the 5th defendant. In response to the request made by the Appellant, the 10th defendant bank informed that they have temporarily stopped the operations of the accounts maintained by the 8th defendant with them. Likewise, on a similar request made by the Appellants, the 10th defendant also stopped the operation of the account maintained by the 9th defendant with them. The 4th defendant bank admitted having collected a sum of ₹10 lakhs as per the pay order produced by the 3rd defendant but there was only a balance of ₹ 4926/-in that account maintained by the 3rd defendant.

The contention of the Appellant is that defendants Nos. 1, 3, 5 and 7 to 9 have colluded to defraud the Appellants and cause them the loss of money as stated above. The aforesaid defendants have wrongfully gained the money belonging to the Appellant bank by deploying fraudulent means. Hence it is contended that defendants 1 and 2 are jointly and severally liable to pay the amount collected from the Appellant bank together with interest of 17.09% per annum with effect from 21/09/1998 till realisation. The rest of the defendants who have been wrongfully enriched by the money they have received from the 1st defendant are also liable to return the amount appropriated by them by way of the pay orders, to the Appellant bank.

The 1st defendant’s contention is that the original application is not maintainable since the transaction between the Appellant and the 1st defendant is not a debt. It is also contended that the claim is barred by limitation. There is no privity of contract between the Appellant and the 1st defendant. The criminal case has been registered against the 1st defendant and 8 others alleging an offence of cheating as criminal case No. 1860/P/2000 in C. R. No. 77 of 1996. The 1st defendant has filed an application for discharge from the criminal case and the said application is still pending consideration. The 1st defendant’s contention is that he’s an astrologer by profession and is also involved in the business as a finance broker. He got acquainted with the 5th defendant and he handed over the cheques issued on the Bank of Baroda, Kanpur branch and wanted the same to be collected and distributed to the other defendants as per pay orders. It is contended that the 1st defendant was only acting as a financial broker and had nothing to do with the cheques which were sent for collection to Kanpur. He states that he has not been involved in any fraud or cheating and is also, therefore, not liable to pay any amount to the Appellant.

The 6th defendant, Bank of India submitted that credit facilities were availed by M/s Konark Computers Private Limited in the suit filed for the realisation of the amount before the Hon’ble High Court of Bombay and in which suit, the 5th defendant is also a party since he had mortgaged his flat. He had requested his flat to be sold for settlement of the dues and thereafter on 20/06/1995 he deposited ₹ 13.5 lakhs in his savings account which was transferred towards the discharge of debt due from the aforesaid Konark Computers. The 6th defendant bank is, therefore, not responsible for any defect in the cheque as claimed by the Appellant.

The 9th defendant also filed a written statement stating that there is no creditor-debtor relationship between the Appellant and him and therefore, he has been falsely implicated. This defendant contends that he was working in the company name of Konark Computers Private Limited. In the course of his employment, he became friendly with the 5th defendant for whom he had advanced a loan of ₹15,000/-. The 5th defendant could not repay the loan for which he had also agreed to pay interest and had executed a promissory note. The 5th defendant had also asked for another loan of ₹1 lakh for investment in shares of companies and this defendant had paid ₹ 45,000 to the 5th defendant on 02/09/1991. Further amounts were also paid to the 5th defendant. Towards repayment of the amount of the said amount, the 5th defendant issued a cheque which was dishonoured. Thereafter, after much persuasion the 5th defendant paid ₹75,000/- to this defendant by pay order which was encashed, he contends that he is not responsible for the realisation of the amount and has not been a part of the fraud as alleged.

The Presiding Officer has in the impugned judgment observed that the person who had issued the cheques namely the unknown person who represents M/s Raymond Industries has not been made a party and therefore, the suit suffers non-joinder of necessary parties. The D.R.T. has also found fault with the Appellant Bank for not being able to prove that the cheques in question were handed over to the 1st Defendant to be dispatched to the Appellant’s Branch in Kanpur. The realisation advice received by the Appellant was found to be forged. It is only when the third cheque came for a collection that the Appellant Bank contacted their branch at Kanpur and realised that the Account that stood in the name of M/s Raymond Industries was closed long before the issuance of the cheques. The Ld. Counsel for the Respondents had also relied on the decision of the Hon’ble Gujarat High Court reported Bank of India V/s Vijay Ramniklal Kapadia & Ors. AIR 1997 Gujarat 97 wherein it was held that commission of fraud by a Bank employee is outside the jurisdiction of the Tribunal since it is not a transaction coming within the definition of ‘debt’ under Sec. 2(g) of the RDDB Act. However, the Ld. P.O. has accepted the aforesaid contention and held that defendants cannot be held liable for the fraud played upon the plaintiff but at the same time held that the Tribunal does not lose jurisdiction in view of the law laid down by the Hon’ble Apex Court that any transaction during the course of business of the bank falls within the meaning of debt. But however, concluded that the defendants cannot be asked to pay the amount since fraud perpetrated by them has not been proven.

The Ld. Counsel for the Respondents has pointed out that the judgment of the Hon’ble Gujarat High Court was considered by the Hon’ble Apex Court in Eureka Forbes Ltd. V/s Allahabad Bank & Ors. (2010) 6 SCC 193 and held that an employee of the Bank misappropriating the amount of the bank is different from the Bank losing money on other accounts. An illustration has been demonstrated in the judgment to the effect that when a theft of money and hypothecated goods belonging to a bank is reported and in the crime that is registered for theft and the accused arrested. The Tribunal may not have jurisdiction to entertain and decide an application for money or value of goods in terms of Sec. 17 of the SARFAESI Act.

The Ld. Counsel for the Appellant has relied upon various decisions in support of his arguments like Solomon Jacob V/s National Bank of India Ltd. AIR 2017 Bom 119 to vouch for the position that a person to whom money has been paid by mistake must repay it. The decision of the Hon’ble Apex Court in United Bank of India V/s Debts Recovery Tribunal & Ors. AIR 1999 SC 1381 is relied upon to argue that the expression ‘debt’ is wide enough to include a claim of an undetermined sum in that the entire averment in the plaint has to be looked into while deciding whether the claim can be adjudicated upon by the Tribunal constituted under the RDDB Act. The decision of the Hon’ble Bombay High Court reported in Amit H Jhaveri & Ano V/s Bank of Baroda Mumbai & Ors. 2011 (1) Mh.L.J. 55 is relied upon to submit that the benefit of the financial assistance taken by the petitioner in a fraudulent manner from the Respondent Bank for the purpose of dismissal can be considered as a debt and the Bank can proceed against them under the provision of RDDB Act. The Ld. Counsel for the Appellant has also relied upon the judgment of the Hon’ble Delhi High Court in M/s. J. U. Mansukhani & Co. & Ano. V/s Presiding Officer & Ors. AIR 2000 Delhi 103 to argue that drafts fraudulently obtained in direct or indirect collusion with the Bank Officials are clearly a business activity of the Bank and would fall within the definition of ‘debt’ under Sec. 2(g) of the RDDB Act.

Considering the judgments relied upon the parties and applying to the facts and circumstances of the present case, it is seen that the defendants Nos. 1, 3, 5 and 7 to 9 had received the amount in their accounts consequent to the presentation of the cheques to the Appellant Bank and were and enriched by the amounts they received. The cheques were wrongly/fraudulently encashed by them, even though it may not be with their active participation in the fraud, they had been recipients of the amount fraudulently from the Appellant Bank. Under the circumstances, the amount that they received would squarely fall within the ambit of a ‘debt’ under Sec. 2(g) and enables the Bank wrongly deprived their money to recover it. In case the said defendants had received money that was legally due to them from others, their remedy to recover that amount lies elsewhere and not by fraudulent means deployed to extract money from the bank undeservedly. It may also be true that they were not guilty of fraud themselves or may even have been victims of the fraud, but that would not permit them to defend their case and retain the illegally earned money that comes into their account from the Appellant Bank.

The Appeal is, therefore, to be allowed and the impugned judgment is set aside. O.A. No. 1661/2000 on the files of D.R.T. -III, Mumbai is allowed and the Appellants are issued a recovery certificate to recover the amount from defendants Nos. 1, 3, 5 7, 8 & 9 to the extent of money they have received in their respective accounts by means of the cheques/ pay orders which have been encashed from the Appellant Bank by the 1st Defendant, together with interest @ 6% per annum with the effect from the date of filing of the O.A. till realisation. In the peculiar circumstance of this case, the parties shall bear their respective costs.