Central Bank of India Asked To Pay Rs25 Crore with 9% Interest for Embezzlement of PHFI's FDs
Moneylife Digital Team 22 May 2024
Holding Central Bank of India responsible for allowing a fraudster to open an overdraft (OD) account without following know-your-customer (KYC) norms through which Rs22.5 crore were embezzled, the national consumer disputes redressal commission (NCDRC) directed the lender to pay Rs25 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 Ram Surat Ram Maurya (presiding member) and Bharatkumar Pandya (member) says, "It is proved that the branch office of Central Bank of India received a total Rs25 crore from the PHFI time to time for 'fixed deposit' of one year on which, fixed deposit receipts (FDRs) were issued but the branch office of the Bank, in collusion with the fraudster, opened overdraft account without following KYC norms, through which Rs22.5 crore have been embezzled. There could be no reason for not following KYC norms while sanctioning an overdraft facility of such a heavy amount except the collusion of the officers of Central Bank of India with the fraudster."
PHFI, registered as a society, was set up to establish new institutes of public health, assist existing institutes in enhancing their capacity and output, and promote research in prioritised areas of public health. In 2013-14, the governing board of PHFI decided to put 80% of its funds in fixed deposits (FDs) with public sector banks (PSBs), thinking that money in FDs with PSBs was the safest mode for holding the money and utilising it along with interest earned on it, for completing its various projects.
In November 2013, PHFI opened an FD account for Rs5 crore with a tenure of one year in the Malad branch of Central Bank of India. The following month, it sent Rs10 crore in two tranches to the Bank for opening FDs for one-year tenure. In January 2014, PHFI again transferred Rs12 crore in three tranches for opening three FDs of one-year tenure in Central Bank of India. In total, from November 2013 to January 2014, PHFI opened five FD accounts for Rs22 crore in Central Bank of India's Malad branch.
In May 2014, PHFI remitted Rs3 crore to Central Bank of India to open an FD for a one-year tenure.
Similarly, PHFI also opened FD accounts with Punjab and Sindh Bank (Rs10 crore) and Dena Bank for Rs20 crore.
On 28 June 2014, PHFI received an email from a senior inspector in the economic offences wing (EOW) of the central bureau of investigation (CBI) informing about a large scale of embezzlement of Rs58 crore. Also, during the investigation, it was revealed that Rs14.50 crore was transferred to the account of the SIES Trust from the account of the PHFI.
PHFI informed CBI that it had not transferred the amount to SIES Trust. CBI also informed PHFI that an account was opened in the name of SIES Trust with Punjab National Bank's Khar branch in Mumbai, and Rs14.50 crore was transferred from PHFI accounts on 21 May 2014.
The officials of the PHFI checked its FDs with Punjab National Bank and Punjab & Sind Bank, where embezzlement had taken place. Amit Chaturvedi, head of finance at PHFI, went to the Malabar Hill branch of Dena Bank on 7 July 2014 and met with Pritam Nagarkar, the Bank's chief manager and inquired about its FDs. Mr Nagarkar assured Mr Chaturvedi that the money would be refunded, along with interest, within six to seven days to PHFI.  
However, on 10 July 2014, the zonal manager of Dena Bank filed a complaint with CBI alleging that Mr Nagarkar, in connivance with Vimal Barot, Showman group and unknown persons of seven organisations, had embezzled about Rs220 crore of the Bank.
When PHFI asked to refund its FD amount, Dena Bank replied by saying that the FDRs did not match with its record. Instead, Dena Bank says its record shows there was a current account opened in the name of PHFI, where the amounts were credited on four dates between 13 March 2014 and 7 May 2014. From this current account, the money was transferred to various accounts, and the matter has been referred to CBI for investigation, Dena Bank says. PHFI denied opening the current account in Dena Bank. As per the instruction from the branch manager, Rs18 crore was transferred to the current account. For the account, two chequebooks were issued and received by one Devendra Suresh Bhogle. The entire amount from the current account was siphoned to other accounts using these cheques.
After the incident, the official of PHFI visited the Malad branch of Central Bank of India and inquired about the status of its six FDs. Bank officials handed over tax deducted at source (TDS) certificates of up to 31 March 2014 to PHFI. The official of the PHFI noticed that the interest certificate mentioned an address in Mumbai along with the address of the PHFI in Delhi. Due to large-scale fraud in banks, the management of the PHFI decided to close all the FDs and asked Central Bank of India to remit the amount with accrued interest.
However, on 7 July 2014, an official from Central Bank of India handed over a statement of OD account along with the TDS certificate to PHFI. Public Health Foundation, however, denied remitting money to open an OD account and says it has transferred Rs25 crore for FDs of one-year tenure. 
PHFI wrote a letter on 21 July 2014 to the fraud monitoring cell of the Reserve Bank of India (RBI) to investigate the incident. It also lodged a complaint with CBI on 28 July 2014 to investigate this fraud and recover its money, on which crimes nos82/2014, 83/2014 and 84/2014 were registered against Bank of Maharashtra, Central Bank of India and Punjab National Bank.  
After receiving certified copies of all the documents relating to the opening of the current account from CBI, PHFI found that Rs8 crore transferred on 13 February 2014 was invested in 'Samruddhi Deposit Receipt' no1807117 on the same date and it was closed on 14 February 2014, on the instructions issued by the manager. The amount was transferred into an account opened in the name of the PHFI with Bank of Maharashtra's Malad branch.
Central Bank of India's Malad (west) branch, vide letter dated 26 September 2014, informed that it had received an application supported by the resolution of the governing body of the PHFI to sanction an overdraft facility of Rs4.5 crore on 21 November 2013, against FDR no3301504868. Based on the communication, the Bank opened an OD account no3301599318 in the name of PHFI. The limit of the overdraft facility used to be increased from time to time on the request of the PHFI based on four FDRs deposited in December 2013 and January 2014 and the total limit of the overdraft was Rs22.5 crore. 
PHFI alleges that Central Bank of India never informed it about the OD account. When it sought papers related to the OD account, it did not receive any response from the lender. In April and May 2016, PHFI sent letters to the Bank seeking a refund of its balance amount of Rs2.5 crore from the FDs. However, it says Central Bank of India declined to refund the balance amount. 
PHFI then filed a complaint before NCDRC alleging deficiency in service by Central Bank of India by not following the KYC norms, anti-money laundering standards, combating of financing of terrorism, obligations of banks under the Prevention of Money Laundering Act (PMLA) and Real Time Gross Settlement Guidelines, 2013 issued by RBI, while opening the OP account in the name of PHFI.  
It says, "Within a short span of time, entire money of Rs25 crore was embezzled and the OD account was closed. Due to fraud committed by the branch manager of Central Bank of India, PHFI is being harassed in criminal investigation and its accounts were seized on 6 August 2014, which was re-opened on condition of giving security of Rs27 crore and for maintaining minimum balance of the amounts as received from Central Bank of India, due to which, project works undertaken by the PHFI have been stopped."
The counsel for Central Bank of India submitted that one Amrita CA, an agent of PHFI, approached the Bank to open FD accounts and no official from PHFI visited the branch for the FDs. Ms Amrita later approached the Bank for granting an OD facility on the security of the FDs and submitted all necessary papers for opening the account, after which the OD account was opened, he says.
Further, he alleged that "The officer of the PHFI had full knowledge of the affairs of their account from beginning till end. PHFI has lodged a false criminal complaint against the Bank before CBI on 28 July 2014. The letter dated 29 September 2014 was sent to set at rest all the misgivings of PHFI and as a reply to their rhetoric in the matter. The officers of PHFI availed services of an agent, who was in connivance with them. PHFI lodged a criminal complaint with CBI, which is investigating the matter. There is no deficiency in service within the meaning of Section 2(1)(g) of the Consumer Protection Act, 1986."
After hearing the arguments of the counsel for the parties and examining the record, NCDRC observed that the plea that complicated issues of fact are involved, which requires trial by civil court, is constantly raised by the opposite party for harassing a consumer. "In the present case, both the parties have cross-examined the witness of each other. So far as the argument that PHFI has produced fake documents along with the complaint is concerned, whatever documents were supplied by the Bank or obtained from CBI or other government agencies were filed. If the same documents are not available in the record of the Bank, then its branch manager is responsible for it and not the PHFI. The branch manager handed over the papers to the PHFI, which are available in its office; same was filed in the complaint. Preliminary objections raised by Central Bank of India have no merit."
So far as allegations of not following KYC norms are concerned, the bench noted that Central Bank of India stated that as the heavy amounts were transferred to the Bank, it had no reason to doubt the genuineness of the papers or signatures on it as produced by the representative and lending credence of the representative (of PHFI).
Partly allowing the complaint, NCDRC directed Central Bank of India to pay, within two months, Rs25 crore with 9% interest from the respective date of transfer of the money to it up to the date of payment to PHFI.
(Consumer Case No1185 of 2016 Date: 16 May 2024)
2 months ago
what happened to cbi case?
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