Bank held liable for fraud by its manager

The National Commission noted that other bank officials had blamed its own manager for embezzlement, so for the bank to accuse PHFI's employees was an afterthought

The Public Health Foundation of India (PHFI), a non-governmental organisation (NGO) registered under the Societies Registration Act, was established in 2006 with the aim of enhancing and establishing new institutes of public health.

Recognised as a scientific and industrial research organisation, it was granted exemption under the Income-Tax Act. It was also registered under the Foreign Contribution (Regulation) Act.
 

PHFI maintained a current account with Citibank for receiving foreign donations and a savings account with HDFC Bank for receiving domestic donations. In 2013-14, the NGO decided to place 80 per cent of its funds in deposits with a public-sector bank. This deposit account was opened at Dena Bank, Malabar Hill Branch, which offered an interest rate of 9.6 per cent under the Samruddhi Deposit Scheme. The deposits were made by transferring money through RTGS from both Citibank and HDFC Bank.
 

During an audit, PHFI’s auditors wrote a letter to Dena Bank, Malabar Hill Branch, to confirm the existence of the deposits which had been placed. In response, a senior inspector of police sent an email intimating that there had been a large-scale embezzlement of funds, including the amounts placed in deposit by PHFI. Upon inquiry, the NGO discovered that Dena Bank had lodged a Central Bureau of Investigation (CBI) complaint against its own manager, Pritam Vidyadhar Nagarkar, for siphoning off funds amounting to about Rs 220 crore in collusion with one Vimal Barot of Showman Group, and unknown individuals from seven other organisations. The deposits which had been placed for a one-year tenure had been closed, and the money transferred to a fictitious account.
 

When PHFI requested repayment of the deposits, the bank refused, claiming it could not do so as the matter was under investigation by the CBI. As a result, a complaint was filed before the National Consumer Disputes Redressal Commission (NCDRC).
 

The maintainability of the complaint was challenged on the grounds that it was not within the scope of the Consumer Protection Act to adjudicate a complaint dealing with complex issues related to fraud and misappropriation of money, which would necessitate the recording of extensive evidence and examination of witnesses. The bank tried to absolve itself of responsibility by accusing the employee of PHFI who was interacting with the bank, alleging that the deposits were closed and the funds transferred under the instructions of a PHFI employee.
 

The National Commission observed that the Consumer Protection Act provided an additional remedy, and it possessed all the powers of a civil court to record evidence. Hence, the complaint was maintainable.
 

The Commission noted that the complaint lodged with the CBI by the bank made it clear that its own manager was involved in transferring money to fraudulent accounts without complying with KYC (know your customer) requirements. Several of Dena Bank’s officials had recorded their statements in the CBI inquiry, describing how funds had been transferred on the branch manager’s verbal instructions.
 

The Commission noted that bank officials had accused the branch manager of embezzlement and had not made any allegations against PHFI’s employees. Hence, subsequently accusing PHFI’s officials in its defence before the Commission was deemed an afterthought.
 

The Commission concluded that the evidence clearly established the embezzlement of money in complicity with Pritam V Nagarkar, the chief manager of Dena Bank’s Malabar Hill branch.
 

Accordingly, in its order delivered by Justice Ram Surat Ram Maurya on June 1, 2023, the National Commission ordered Bank of Baroda (which had taken over Dena Bank) to refund Rs 15,93,09,588 along with 9 per cent interest.

The writer is a consumer activist