Bank not a trustee of money deposited by Customers; Supreme Court holds the relationship between customer and Bank is one of a creditor and a debtor and not of a trustee | SCC Blog–scconline.com

Clipped from: https://www.scconline.com/blog/post/2021/12/22/bank-not-a-trustee-of-money-deposited-by-customers-supreme-court-holds-the-relationship-between-customer-and-bank-is-one-of-a-creditor-and-a-debtor-and-not-of-a-trustee/

Supreme Court: The 3-Judge Bench of N.V. Ramana, CJ., Surya Kant* and Hima Kohli, JJ., held that the Bank is not the trustee of the money that a customer deposits in a bank and the same is not held by the former on trust for him. The money so deposited becomes a part of the banker’s funds who is under a contractual obligation to pay the sum deposited by a customer to him on demand with the agreed rate of interest. Such a relationship between the customer and the Bank is one of a creditor and a debtor.

Background

The prosecution case was that the Appellant-N. Raghavender, Branch Manager of Sri Rama Grameena Bank along with accused 2 abused their respective position in the Bank and conspired with accused 3-Treasurer of the Nishita Educational Academy and brother-in-law of Appellant, by allowing withdrawal of amounts up to Rs. 10,00,000 from the account of the Academy in spite of availability of requisite funds for such withdrawal.

The prosecution contested that the Appellant, in his capacity as a Branch Manager, issued three loose-leaf cheques and despite withdrawal of the said amount, the debit was deliberately not entered into the ledger book. The endorsement on the third cheque showed the payment in favour of the accused 3; however, the signature on the cheque did not tally with that of accused 3. The Appellant was further accused of prematurely closing two FDRs for a sum of Rs. 10,00,000 and 4,00,000 respectively, and stood in the name of one B. Satyajit Reddy. The case was referred to CBI for offences under Sections 409, 477(A), and 120B Penal Code, 1860 and Section 13(2) read with 13(1)(c) & (d) of the Prevention of Corruption Act, 1988.

The Courts below acquitted all the accused of offences under Section 120B IPC. Further accused 2 and accused 3 were acquitted of all the other charges, while the appellant was held guilty and was convicted and sentenced to five years imprisonment along with various fines.

Observation and Analysis

A. Fraudulent and unlawful withdrawal of Rs. 10 Lakhs from Account No. 282 in the year 1994

Noticeably, the record though clearly revealed that issuance of a loose cheque was a departure from the standard operating procedure followed at the Bank, but no evidence had been led that it was an ‘illegal practice’ as in certain contingencies the Bank could issue loose cheques also. Therefore, the Bench stated,

“Since no explicit prohibition on issuing of loose cheques has been proved, the mere fact that the Appellant issued those loose cheques, is not sufficient to conclude that he acted unlawfully or committed a ‘criminal misconduct’.”

The case of the Prosecution rested heavily on the premise that the three cheques in question were passed even though there weren’t adequate funds in account however, the Auditor and the accountant had testified about there being sufficient funds in account throughout which was corroborate the Current Account Ledger for account in question. Therefore, the Bench held that the Bank did not suffer any loss.

With respect to the charge of ‘deceit’, the depositions of the Auditor and Accountant unveiled that though the relevant entries were missing in the Current Account Ledger, they did find a mention in the Officer’s Cash Scroll and the Cashier Payment Register. Noticing the non-production of these relevant ledgers by the Bank, the Bench was of the view that,

“Since the direct and relevant evidence has been withheld, the benefit of doubt for such failure ought to be accorded to the Appellant.”

Similarly, in order to substantiate the charge under Section 477-A IPC, the primary contention of the Prosecution was that despite passing the three cheques, the Appellant did not make the relevant entries into the Current Account Ledger of the account in other to conceal the withdrawals as there were insufficient funds in the account of the Academy. Rejecting that argument, the Bench noted that the expression ‘intent to defraud’ as given under Section of 477-A, contains two elements, deceit and injury. So far as the second element was concerned, no financial injury was caused to the Bank.

B. Unauthorised premature encashment of the two FDRs belonging to B. Satyajit Reddy

The allegation of premature withdrawal was also accompanied by the averment that despite the premature withdrawal, the interests relating to the two FDRs continued to be deposited into savings account of one B. Satyajit Reddy. Notably, the interest amount was transferred from the joint account of the Appellant and his wife which according to the prosecution was to ‘deceive’ the FDR holder into believing that the FDRs were still alive.

Observing that misappropriation with this dishonest intention is one of the most important ingredients of proof of ‘criminal breach of trust’, the Bench opined that relationship between the customer and the Bank is one of a creditor and a debtor and not of a trustee. Further, relying on the following grounds the Bench stated that there was no fraudulent intention as  no financial loss was caused to B. Satyajit Reddy, since:

  • Satyajit Reddy had made no complaint alleging any loss to him;
  • His written requests dated 22.02.1995 and 24.2.1995 for premature encashment of his FDRs and to deposit the amount in the account of the Academy had gone unrebutted;
  • The payment of interest on those FDRs even after pre-mature closure was made by the Appellant from his personal account and no public fund had been divested for such payment;
  • Satyajit Reddy might or might not have got undue monetary gain but definitely he suffered no loss in any manner.

Findings and Conclusion

In the backdrop of above, the Bench opined that in the absence of any reliable evidence that could unfold a prior meeting of minds, the High Court erred in holding that Appellant and other accused orchestrated the transactions in question to extend an undue benefit to Accused 3. Having held so, the Bench added that the appellant acted brazenly contrary to the norms and internal instructions of the Bank.

“Although he was clever enough to not trespass into the prohibited area(s) of Sections 409, 420 and 477-A IPC, he ran the risk of causing financial loss to the Bank.”

Therefore, the Bench held that the actions of the appellant constituted gross departmental misconduct and were unbecoming of a senior Bank Officer and hence, his dismissal from service of the Bank was fully legitimised and the punishment so awarded, was proportionate to the proven misconduct. The Bench, though acquitted the appellant of all the charges, it stated that acquittal would not entitle him for reinstatement. [N. Raghavender v. State of A.P., 2021 SCC OnLine SC 1232, decided on 13-12-2021]

Kamini Sharma, Editorial Assistant has put this report together

Appearance by:

For the Appellant: Sidharth Luthra, Senior Counsel

For CBI: Jayant K. Sud, Additional Solicitor General

*Judgment by: Justice Surya Kant

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