Holding Bank of Maharashtra (BoM) responsible for allowing a fraudster to open a current account without following know-your-customer (KYC) norms through which Rs27 crore was siphoned off, the national consumer disputes redressal commission (NCDRC) directed the lender to pay Rs27 crore with an interest of 9%pa (per annum) to the Public Health Foundation of India (PHFI), the original account-holder.
In
an order last week, the NCDRC bench of justice AP Sahi (president) says, "Bank of Maharashtra has nowhere disputed the receipt of Rs27 crore by them from PHFI. Consequently, the Bank was clearly deficient in not verifying the customer identity and information from the complainants or by adopting measures that were required to be observed by them. Hence the Bank is clearly liable for the acts and omissions of its employees directly as well as vicariously. The misappropriation and embezzlement is only a consequence of this deficient functioning of the Bank and the defence taken by it is unacceptable."
During the hearing, the counsel for BoM submitted that, as per the first information report (FIR) filed on 26 July 2014, the bank had been the victim of the fraud. However, NCDRC says the argument is only about the consequences that resulted due to fraud.
"The question as to whether the fraud was committed by an outsider or not may be examined in the criminal case but the fact remains that PHFI's genuine deposits of Rs27 crore were siphoned off due to the negligence of the Bank officials by not observing know-your-customer (KYC) norms that is clearly established," justice Sahi says.
PHFI, registered as a society, was set up in 2006 to establish new public health institutes, assist existing institutes in enhancing their capacity and output, and promote research in prioritised areas of public health. It was granted a corpus of Rs65 crore from the Indian government. A sum of Rs69.22 crore was also contributed by the Bill and Melinda Gates Foundation (US) and other sources.
To secure the donations and their effective utilisation, the funds are invested for which several financial institutions and banks make efforts. Accordingly, in furtherance of the policy of investing surplus funds through term deposits, a decision was taken to invest Rs27 crore with BoM.
One Devendra Suresh Bhogale, representing himself as the manager of BoM, approached PHFI to solicit fixed deposits (FDs) for investment. On 20 September 2013, PHFI transferred Rs5 crore to BoM for investment in an FD. On 26 September 2013 and 30 October 2013, PHFI remitted Rs6 crore and Rs4 crore to BoM for investment in FDs. Later, it transferred Rs12 crore to open an FD in the name of PHFI.
On 28 April 2014, PHFI received an interest of Rs1.78 lakh from BoM. During the same month, its FD of Rs4 crore was also renewed for one more year.
However, Prabhakar Loke, senior inspector of the economic offences wing (EOW), informed PHFI about several such bogus transactions and alerted PHFI that funds were being siphoned by fraudsters from bank accounts.
PHFI immediately contacted BoM and was informed by Prema Venkar, senior branch manager, that their signatures did not match the signatures on the account opening form of the current account, and hence, the bank cannot provide balance information for the FDs. PHFI was later informed that the FD receipts in its possession were fabricated.
BoM's preliminary investigation revealed serious errors in opening the fake current account under the name PHFI. On 12 July 2014, PHFI instructed BoM to close all its FDs and remit the funds worth Rs27 crore.
On the failure of BoM to remit the funds as requested, PHFI, on 28 July 2014, lodged a written complaint before the EOW of Mumbai police, coupled with similar complaints with the bank securities & fraud cell of the central bureau of investigation (CBI).
EOW filed a charge-sheet before the metropolitan magistrate charging Mr Bhogale, Amruta Mathews, Rahul Mukesh Gohil, Arun Kumar and Vimal Barot with opening a fake current account in the name of PHFI and siphoning off the funds from the account.
PHFI also filed a complaint before NCDRC alleging that, due to the absence of due care or possible involvement of the bank officials, funds of Rs27 crore deposited by PHFI were allowed to be siphoned off by BoM.
The counsel for PHFI says, "The current account through which these fake transactions have been carried out to siphon of the money was opened on the basis of fake documents without following the norms and without any verification from PHFI. The fraudsters involved in it had produced the said fake documents that ought to have been verified by the Bank and its officials but they failed to do so, which is evident from the facts on record as well as from the report dated 11 July 2014."
The counsel for BoM opposed the contentions tooth and nail. He contended that the entire contribution of any such negligence lay on the complainant, who transacted their own account through Mr Bhogale and the other fraudsters with which the Bank had no concern. "They were neither the employees of the Bank nor any employees of the Bank are involved in the transactions nor is there any evidence to that effect. PHFI itself had allowed the fraudsters to deal in this opening of the account and there is neither any negligence or any material available on record so as to establish any attributable fault on the part of BoM in the siphoning of the funds."
Responding to the argument from BoM that the investment in FDs is a commercial transaction, justice Sahi from NCDRC stated PHFI is not earning any profit for itself and consequently, this is not a case where any inference of a commercial purpose can be drawn on the facts regarding the status of PHFI and the transactions carried out by it.
Referring to the investigation report from BoM, the counsel for PHFI submitted that the fake account has been transacted with credits amounting to Rs144.97 crore which includes a variety of amounts and proceeds from sources with which PHFI is nowhere concerned. "PHFI had transferred only a total of Rs27 crore and therefore, it is not understood as to how the Bank allowed other different transactions worth more than Rs144 crore, which obviously were fake transactions, neither authorised by PHFI nor operated by it."
NCDRC observed that the deficiency relating to the account opening and the fake migration of the deposits made by PHFI through that account could have been prevented by taking appropriate steps and applying the checks regarding KYC norms when the current account was allowed to be opened and transacted.
"Even assuming for the sake of argument that Mr Bhogale had given any instruction for the said transfer, there is no evidence that PHFI had authorised Mr Bhogale for the opening of a fake current account or providing any KYC norms through him," the bench says.
NCDRC then directed Bank of Maharashtra to refund, within two months, Rs27 crore with 9% interest to PHFI.
(Consumer Case No1055 of 2016 Date: 26 June 2024)
