Bank liable for unsuccessful but attempted fraud by employee

When a bank officer colludes with a party to commit a fraud, the victim is entitled to claim compensation from the bank for the loss caused. But what happens if the fraud is prevented and no loss is caused? In a landmark ruling, the National Consumer Disputes Redressal Commission has held the consumer would even then be entitled to claim compensation for mental anguish and harassment.

Tara Singh had a motor cycle, financed by HDFC Bank. The loan dues were Rs 2,60,426, when he decided to sell the vehicle to Sakartar Singh for Rs 7,82,500, payable in three instalments - earnest money of Rs 2,60,426, first instalment of Rs 2,42,074 to be paid to HDFC Bank to clear the dues and obtain a no-objection certificate (NOC) and other documents from the bank; and final instalment of Rs 2,80,000.

Sakartar wanted to cheat Tara and get the vehicle transferred to his name without paying for it. So Sakartar (the purchaser) impersonated Tara (the seller). The fraud took place with the help of Sandeep Singuria, an employee of the bank, who deliberately identified Sakartar as Tara. By such impersonation, Sakartar obtained the NOC and other relevant forms and documents from the bank, without even clearing the loan dues. Tara discovered the fraud when he approached the bank to complete the formalities. When he took up the matter, the bank tried to browbeat him by alleging he was attempting to sell the vehicle in contravention of the terms of the hypothecation agreement. The bank claimed that NOC had been properly issued. Yet, it sent a letter to the District Transport Officer not to transfer the vehicle as it was hypothecated.

Tara filed a complaint before the district consumer forum, which considered the rival contentions and held the bank guilty of deficiency in service. The bank was ordered to pay Tara a compensation of Rs 3 lakh, along with interest.

The bank appealed to the Chandigarh State Commission, which observed the bank had worked in cahoots with Sakartar Singh. The bank was contradicting its own stand by initially claiming it had correctly issued the NOC and form for cancellation of the hypothecation but later doing a volte face by writing to the transport officer not to transfer the vehicle as it was hypothecated to the bank. However, since the vehicle had not been transferred, the state commission reduced the compensation to Rs 1 lakh, along with 12 per cent interest.

The bank approached the National Commission, which observed the order of the state commission was perfectly justified as the conduct of the bank had caused Tara considerable harassment, mental agony, anger, sadness, frustration and anguish. The fraud was detected only due to Tara's own vigilance. The Commission also criticised the bank for trying to suppress facts and mislead it.

Accordingly, by its order on January 16, a Bench of Justice Malik and Kantikar dismissed the bank's revision and with further costs of Rs 25,000 payable to Tara. The bank was granted liberty to recover the entire amount from its employee, Sandeep Singuria, who had played a pivotal role in the fraud. Thus, a bank is vicariously liable for the fraudulent act of its employee.

The author is a consumer activist