Post office held liable for fraud by its official

The Supreme Court noted that KVP Rules, 1988, and the Post Office Savings Bank Manual mandate payments exceeding Rs 20,000 be made via cheque in holder's favour

Pradeep Kumar and Raj Rani had invested in Kisan Vikas Patra (KVP). The combined maturity value was Rs 32.6 lakh. The scheme allows investors to cash out at a lower value once the initial lock period ends.

In February 2000, Kumar and Rani requested the postal department to transfer the KVPs to the Chowk Post Office in Lucknow. The procedure was explained to them. They were told it would be cumbersome to carry out the procedure on their own. They were advised to enlist the help of an agent named Rukhsana.

The officials informed she had fifteen years’ experience, knew the procedure, and could easily get the KVPs transferred. Rukhsana visited the investors’ residence, asked them to sign on the back of the certificates, and then collected them for attending to the formalities. She also collected the Monthly Income Scheme Pass Book. She even issued an acknowledgement for the KVPs handed over to her.

When the two investors contacted Rukhsana for follow-up, she claimed the procedure would take time. Kumar and Rani later learned that the police had arrested Rukhsana for cheating several investors. So, they contacted the postal authorities and discovered that their KVPs had been encashed for Rs 25.54 lakh. This amount had been collected by Rukhsana in cash and pocketed by her with the connivance of M.K. Singh, the sub-postmaster, who had gone against the rules by failing to issue a cheque in favour of the investors named in the KVP certificate.

When the postal authorities ignored the representations made by Kumar and Rani, the latter filed a complaint before the National Commission. The postal authorities contested the case, contending that payment made to Rukhsana was proper as she had produced the discharged KVP certificates. They argued the postal department could not be held liable for the fraud committed by Rukhsana in an individual capacity. The sub-post master filed a separate reply that the complaint was not maintainable as criminal proceedings were pending against him. Rukhsana appeared but did not file a reply.

The National Commission dismissed the complaint against the postal department, even though it observed that there was some negligence on its part. Rukhsana alone was ordered to pay Rs 25.54 lakh along with interest, compensation and costs.

Kumar and Rani appealed as the postal department had been exonerated. The Supreme Court noted that the signature on the back side of the KVP was not an acknowledgement for receipt of payment. Also, the KVP Rules 1988, along with the Post Office Savings Bank Manual mandate that payments exceeding Rs 20,000 must be made via cheque in favour of the KVP holder. It also pointed out that even though Rukhsana was not the holder, payment was negligently made without obtaining the identity slip from the issuing post office. 

Since it had acted negligently, the postal department’s argument that it had acted in good faith was held invalid. The court also held that as the employer, the postal department would be held liable for the dishonesty of its sub-post master while discharging his official duties as an employee. Accordingly, in its judgement of February 7, 2022, delivered by a three-judge bench, the Supreme Court set aside the National Commission’s ruling, and held the postal department, its sub postmaster, and Rukhsana jointly and severally liable to pay the maturity value of Rs 32.6 lakh along with 7 per cent interest. It also awarded compensation of Rs 1 lakh to be paid within eight weeks, or with 7 per cent interest in case of a delay. Further, Rs 10,000 was awarded as costs.

The writer is a consumer activist