The Metropolitan Region Development Authority (MMRDA) had invested surplus funds of Rs 350 crore in a fixed deposit with Dena Bank at 9.99 per cent interest for 366 days. The amount was remitted on March 19, 2014, through RTGS. The bank divided this amount and issued 45 deposit receipts.
Later, MMRDA received a letter from the Economic Offences Wing of the city police that Rs 45 crore had been siphoned off through a fraud. On contacting the bank, MMRDA officials learnt that the deposit receipts with them were fake, and the bank official's signatures on the receipts were not genuine. The original fixed deposits were purportedly discharged and submitted by MMRDA to the bank for obtaining a loan through a fictitious overdraft account, which showed a dues of Rs 45.23 crore. The bank wanted to recover this amount, and even refused to pay the maturity value of the deposits as the receipts as these were forged. Aggrieved, MMRDA filed a complaint before the National Commission.
Likewise, Maharashtra Tourism Development Corporation (MTDC) had invested about Rs 125 crore with Dena Bank. The investment was divided over 20 deposit receipts. Later, MTDC received a letter from the police that Rs 69 crore had been siphoned off. The method in both the cases was identical. MTDC filed a separate complaint before the National Commission.
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The bank tried to blame MMRDA and MTDC officials of having perpetrated the fraud. It alleged that those very same officials who had negotiated the interest and invested in the fixed deposits had collected the genuine receipts and used these to open fake overdraft accounts to siphon off money.
The National Commission rejected the bank's defences. It observing that neither MMRDA nor MTDC are finance companies. A temporary investment of surplus funds for a short time cannot be equated with manufacturing, trading or rendering service. So it does not constitute business activity and cannot be considered to be for commercial purpose.
The National Commission noted that the record revealed that CBI had registered a case on the basis of a complaint by the Zonal Manager of Dena Bank about a loss of Rs 244.81 crore. After investigation, a charge-sheet was filed against several persons for criminal conspiracy. P V Nagarkar, the bank's Malabar Hill Branch Manager, had fraudulently issued forged receipts with the connivance of another person who posed as a bank officer. Bogus overdraft accounts were opened without adherence to Know Your Customer (KYC) procedures and by forging the signatures and stamps of the MMRDA and MTDC officials. A loan was advanced by pledging the genuine receipts which has been illegally retained by the bank manager. The approval of the overdraft facility by the Zonal Credit Approval Committee was not communicated, so MMRDA or MTDC did not realise that a fraud had occurred. Even the cheque book for the fraudulent overdraft account was handed over to a stranger, so that funds could be siphoned off. The Commission concluded that these were acts of negligence.
The Commission observed that since the bank had received the funds through direct transfer, it had a duty to deliver the original deposit receipts to MMRDA and MTDC against proper acknowledgement from the authorised person. Instead, the bank had handed over the deposit receipts to a rank outsider, causing the fraud to take place.
The Commission also blamed the officials of MMRDA and MTDC for not ascertaining the identity of the person who posed as the bank employee, but held that this would not affect the bank's liability for being negligent. It relied on Supreme Court judgements that the bank is vicariously liable for the wrongdoings of its employees which resulted in money loss to customers. Accordingly, by its judgement of June 3, 2016, delivered by Justice V K Jain, the National Commission directed Dena Bank to pay MMRDA the principal amount of the fixed deposit of Rs 350 crore and Rs 126 crore to MTDC, along with the agreed rate of interest.
The author is a consumer activist
