Post Office/Bank Can Be Held Liable For Frauds Or Wrongs Committed By Its Employees: SC

Post Office/Bank Can Be Held Liable For Frauds Or Wrongs Committed By Its Employees: SC
Pradeep Kumar v/s Post Master General that once it is established that fraud or any wrongful act was perpetrated by an employee of a post office during the course of their employment, the post office would be vicariously liable for the wrongful act of such employee.

In a very significant judgment with far reaching consequences, the Apex Court in a learned, laudable, landmark and latest judgment titled Pradeep Kumar And Anr. vs Post Master General and Ors in Civil Appeal No. 8775-8776 of 2016 delivered as recently as on February 7, 2022 held that once it is established that fraud or any wrongful act was perpetrated by an employee of a post office during the course of their employment, the post office would be vicariously liable for the wrongful act of such employee. The Supreme Court clarified that the post office is entitled to proceed against the concerned officer, but the same would not absolve them from their liability. Very rightly so!

To start with, this extremely commendable, cogent, composed and convincing judgment authored by Justice Sanjiv Khanna for a Bench of Apex Court comprising of Justice L Nageswara Rao, himself and Justice BR Gavai first and foremost puts forth in para 1 that:
The aforementioned civil appeals preferred by Pradeep Kumar and Raj Rani (hereinafter wherever required referred to as 'the appellants') assail the judgment dated 15th May 2015 passed by the National Consumer Disputes Redressal Commission, New Delhi, the 'NCDRC' for short, whereby their complaint registered as Consumer Case No. 148 of 2001 against the Post Master General, U.P. Circle, Lucknow, Uttar Pradesh, Senior Superintendent of Posts, Lucknow Division, Post Master, Head Post Office Chowk, Lucknow and M.K. Singh, Sub-Post Master, Post Office, Yahiyaganj, Lucknow (hereinafter wherever required collectively referred to as 'the respondents') has been dismissed, albeit allowed and decreed against Rukhsana.

In hindsight, the Bench then points out in para 2 that:
The appellants during the years 1995 and 1996 had purchased Kisan Vikas Patras, 'KVPs' for short, in joint names from various post offices located in the State of Uttar Pradesh in different denominations and with varying dates of maturity. The combined face value on maturity was Rs.32.60 lacs; however, the KVPs were encashable at the post offices before the maturity date at a lower value after the stipulated/lock-in period of holding.

To put things in perspective, the Bench then envisages in para 3 that:
As per the appellants, in the last week of February 2000, they had approached the Post Master, Head Post Office Chowk, Lucknow, with the request to transfer the KVPs to the Chowk Post Office, Lucknow. The appellants were asked to apply with the Chowk Post Office. They were informed that the transfer request would be allowed after due verification of the KVPs and the identity/signatures on the transfer application from the record with the issuing post office.

The process, they were forewarned, being time-consuming and cumbersome would require several visits to the post office. The Post Master, Head Post Office Chowk, Lucknow had recommended that they take services of Rukhsana, an agent appointed by the State of Uttar Pradesh and associated with the post office. As per the appellants, they were misled to believe that without the help of an agent like Rukhsana the transfer would not be possible and she would take care of their interest. Rukhsana, during the interaction, had informed the appellants that she had been working and associated with the post office for fifteen years, and being aware of the procedures would get the transfer effected without difficulty. On 03.03.2000, Rukhsana came to the residence of the appellants, and as instructed, the appellants signed the original KVPs on the backside and handed them over to Rukhsana. She also took the Monthly Income Scheme (MIS) passbook stating that it was required to process the transfer. Rukhsana executed a receipt and gave it to the appellants confirming receipt of the KVPs.

As it turned out, the Bench then discloses in para 4 that:
Rukhsana did not on her own revert to the appellants and when contacted had assured them apropos the transfer. Meanwhile, appellant No.1, i.e. Pradeep Kumar, had to leave Lucknow to join the official duty in Motihari, Bihar. Raj Rani, the second appellant, remained in touch with Rukhsana, who had informed that the process was taking time.

It deserves mentioning that the Bench then lays bare in para 5 that:
In June 2000, the appellants learnt that Rukhsana had cheated several investors and had been arrested by the police. Thereupon, the appellants made enquiries and discovered that the KVPs had been encashed from the Yahiyaganj Post Office and Lal Bagh Post Office. A sum of Rs. 25,54,000/- was paid in cash to Rukhsana, who had pocketed the entire amount. The appellants state that their enquiries reveal involvement of M.K. Singh, Sub-Post Master, Post Office, Yahiyaganj, the fourth respondent before us, who, contrary to the rules, had paid the maturity proceeds in cash and not by cheque in the names of the appellants. Underpinning the argument are the Kisan Vikas Patra Rules, 1988, '1988 Rules' for short, and the Post Office Saving Bank Manual (Volume II), which we will refer to and delineate later.

No doubt, the Bench then rightly brings out in para 6 that:
The appellants made several representations to which the respondents did not respond, whereupon they filed the aforesaid complaint under the Consumer Protection Act before the NCDRC, praying that the respondents and Rukhsana should be directed to pay the appellants Rs. 25,54,000/- along with interest @ 18% per annum. Additional prayer was for compensation of Rs. 1,00,000/- on account of the mental agony and harassment along with interest @ 10% per annum and Rs.10,000/- by way of litigation expenses.

Quite significantly, the Bench then clearly states in para 37 that:
Now, we advert to the second issue as to whether the respondents would be liable for the wrongs and act of M.K. Singh, respondent No. 4, in connivance or at the behest of Rukhsana. We begin by noting that M.K. Singh is not a third person but an officer and an employee of the Post Office. Post Office, as an abstract entity, functions through its employees. Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others. (See Punjab National Bank v. Smt. Durga Devi and Others (1977) SCC Online Del 93). Such acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties.

Be it noted, the Bench then enunciates in para 39 that:
In the context of the factual background of the present case, we have no doubt in our mind that the fraud was committed by M.K. Singh, respondent No. 4, in and during the course of his employment. This is clear from the findings recorded in the departmental proceedings, which are as follows:

I have gone through the records of the case, enquiry report and other related documents of the case and have come to conclusion that the charged official Shri M.K. Singh utterly failed to observe the Rule 23(1) of PO S.B. Manual Volume-II, i.e., procedure for encashment of certificates purchased from other than the office of issue. The Enquiry Officer has also agreed in enquiry report that the procedure outlined in Rule 23(1) of PO SB Manual Vol-II was not followed. The Enquiry Officer has also agreed that the investor has not given any application NC-032 for transfer of KVPs as provided in Rule 37 (1) and Rule 37(5) of PO SB Manual Volume II and Rule 3(1) (ii) of CCS (Conduct) Rules 1964 as mentioned in Article-I of Memo of Charges.

The Enquiry Officer in his enquiry report has agreed that the investor is a literate person and thus the endorsement of investor at the time of payment of KVPs should have been obtained in the handwriting of investor as provided in Rule 23(2) of SB Manual Vol-II. Otherwise if it was encashed through messenger (NS Agent) / authority letter should be produced. The Enquiry Officer has also agreed that the endorsement on KVPs at the time of payment was made by Smt. Rukhsana NS Agent. As such it is clear that the payment was made on the basis of already signed endorsement for receipt of payment. The charged official did not observe the procedure outlined in Rule 23(2) of SB Man. Volume-II. Thus it was against the provisions of Rule 23(2) of SB Manual Volume-II and Rule-3(1)(ii) of CCS (Conduct) Rules 1964 as mentioned in article II of Memo of Charges.

The Enquiry Officer in his enquiry report has suspected whether the payment of KVP was made to the investor or not. Thus it was against the provision of Rules 3(1)(i) and 3(1)(iii) of CCS (Conduct) Rules 1974 as mentioned in article-II of Memo of charges.

Most significantly, what forms the cornerstone of this notable judgment is then illustrated in para 40 wherein it is held that:
On behalf of the respondents, it is urged that the aforesaid observations are limited and confined to only one KVP. In our opinion, this contention would not help the respondents since it is apparent to us that the respondents were faced with a difficult position as they wanted to act against M.K. Singh, and at the same time also protect themselves against any liability and claims of the appellants. Faced with this dilemma, the respondents acted halfheartedly and took action in the proceedings initiated against M.K. Singh, while they wanted to protect their commercial interests and defend themselves against claims made by the appellants. The findings recorded in the inquiry report, which became the basis for the order of dismissal, which punishment was subsequently converted to compulsory retirement, would, in our opinion, equally apply to the encashment of all the KVPs. No valid distinction can be drawn between the case that became the subject matter of departmental enquiry and other cases of encashment of the KVPs. Hence, the post office/bank can be held liable for the fraud or wrongs committed by its employees. Accordingly, the respondents will be held liable for the acts of M.K. Singh during the course of his employment.

Finally, the Bench then concludes in para 41 by holding aptly that:
In view of the aforesaid findings, we allow these appeals and set aside the impugned order passed by the NCDRC dismissing the consumer case filed by the appellants.

The order and directions against Rukhsana remain undisturbed. We would allow the consumer case by issuing the following directions:

 

  1. Respondent Nos. 1 to 4 would be jointly and severally liable to pay the maturity value of the KVPs as on the date the KVPs were presented to the post office for encashment, along with 7% simple interest per annum from the said date till the date of payment.
  2. The appellants would be entitled to a compensation of Rs. 1,00,000/- and costs of Rs. 10,000/-.
  3. The amounts as directed above would be paid within eight weeks from the date of pronouncement of this judgment. In case of failure to pay the compensation amount within the aforesaid time, the respondents would be additionally liable to pay simple interest @ 7% per annum on the compensation amount of Rs.1,00,000/- from the date of pronouncement of this judgment till the date of payment.

In a nutshell, the Apex Court Bench in this case has made it indubitably clear that post office/bank can be held vicariously liable for frauds or wrongs committed by its employees. The inescapable conclusion that can be drawn is that post office/bank cannot hold themselves above board for frauds or wrongs committed by its employees and they too are accountable for it. No denying it!

Sanjeev Sirohi, Advocate,
s/o Col BPS Sirohi, A 82, Defence Enclave,
Sardhana Road, Kankerkhera, Meerut – 250001, Uttar Pradesh.